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Unilever’s shares slid 8 per cent after the multinational consumer goods group raised prices sharply in the second quarter to counter soaring commodity costs, sending sales volumes lower.

The shares closed down 122p to £13.88 after the group said total sales volumes fell 0.5 per cent over the quarter due to declines in Europe, its biggest regional market, and in the US.

Although underlying sales revenues rose by 7.4 per cent, almost all the growth was due to higher prices.

Patrick Cescau, chief executive, said: “We’re facing substantial [commodity] price increases which we’re passing on to the consumer.”

The group raised prices in Europe by up to 15 per cent in the second quarter.

Martin Deboo, analyst at Investec, estimates Unilever’s commodity costs, which include mineral as well as edible oils, were up 20 per cent in the second quarter compared with a year earlier. “They’re facing extraordinarily challenging conditions,” he said.

Investors were also disappointed to see Unilever reduce its marketing spending. Although the company increased advertising spending by €100m (£78m) in the first half, it cut the amount spent on promotions. “When we increase prices, we want the price increases to stick,” Mr Cescau said.

Analysts said they understood Unilever’s decision but pointed out that competitors such as Danone, Cadbury and Reckitt Benckiser were either maintaining current levels of marketing spending or increasing them.

Andrew Wood, analyst at Bernstein Research, said: “From a competitive perspective they are losing impact because their competitors are still continuing to spend.” Unilever remains dependent on emerging markets for most of its sales volume growth, with its Asia/Africa region, which includes central and eastern Europe, contributing growth of 4.1 per cent.

Mr Cescau said: “There’s a huge growth opportunity in developing and emerging markets.” He rejected suggestions that Unilever was abandoning Europe, but said the company was devoting less of its marketing budget to the region.

Unilever’s chief executive declined to comment on when he would retire, but said that there was “no immediate pressure”.

“I’ve achieved a lot of what I want to achieve . . .” said Mr Cescau, who is expected to step down in mid-2009. “It’s not unreasonable to consider the future.”

Pre-tax profits fell 4 per cent at actual exchange rates to €1.3bn, and total sales fell 1 per cent to €10.3bn. At constant rates, pre-tax profits would have been 4 per cent higher, and sales 6 per higher.

Copyright The Financial Times Limited 2017. All rights reserved.
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