Unilever sales disappoint as competition bites big brands

Unilever reported lower-than-expected third-quarter sales, losing market share to smaller competitors and dampening hopes that an aborted takeover offer from Kraft Heinz would spark a swift improvement.
Underlying sales rose only 2.6 percent, Unilever said on Thursday. That was below the 3.9 percent growth expected by analysts in a company-supplied consensus, and below the 3 percent seen in the first half of the year.
Unilever’s shares were down 4 percent at 0828 GMT, having risen by about a third since Kraft’s unsuccessful $143 billion takeover bid for the maker of Magnum ice cream and Dove soap in February.
The company blamed poor weather in Europe, hurricanes in the US and earthquakes in Mexico for disrupting its sales. But it also cited the growing threat from local competitors in markets such as US ice cream and Southeast Asian personal care.
Unilever lifted its profitability target in July and there was some concern that lower spending on marketing was having a negative impact on sales.
“Our competitiveness has dropped off a little,” Chief Financial Officer Graeme Pitkethly said. The company is only gaining market share in about half of its business, he said, down from about 60 percent in previous years.
Swiss rival Nestle reported accelerated third-quarter sales on Thursday, but said increased restructuring costs would weigh on margins.
“Life is becoming more difficult for the consumer goods giants, as competition from smaller, nimbler players intensifies and consumer preferences shift toward niche and alternative brands,” said Charlie Higgins, fund manager at Hargreaves Lansdown, which owns Unilever shares.
“To succeed in the long term Unilever will need to adapt its business model, becoming more agile and responsive to changing trends.”
Pitkethly said the quarter came up about €150 million, or about one day’s worth of sales, short of internal hopes.
“We’re not happy with that in aggregate. In fact, we feel we left some runs in the field,” Pitkethly said. Hurricanes caused about a week’s worth of lost sales in Texas and Florida, its biggest US markets, he said.
Unilever’s ice cream business, which also includes Ben & Jerry’s and Wall’s, saw double-digit declines in Europe, hurt by poor weather, and suffered market share losses in the US at the hands of a new brand, Halo Top.
Unilever had reduced its advertising and marketing spending by 130 basis points in the first half of the year, in an effort to cut costs in the wake of Kraft’s bid, and one analyst said that may have hurt its sales now.
“In our view, the seeds of Q3’s poor performance versus expectations were planted with the reduction in advertising and promotional spend in the first half,” said RBC Capital Markets analyst James Edwardes Jones.
“While natural disasters doubtless played a part, the fact is that Unilever’s Q3 performance came in below expectations in all geographies.”
Turnover fell by 1.6 percent, hurt by a 5.1 percent hit from foreign exchange rates, the company said.
Excluding its up-for-sale margarine and spreads business, for which tentative takeover bids are due on Thursday, sales rose 2.8 percent.
The company stood by its full-year forecast for sales growth of 3 to 5 percent, an improvement in underlying operating margin of at least 100 basis points and strong cash flow.

Source:Arabnews