Unilever sales dip 1.8% due to slide in emerging markets' currencies

London:Unilever Plcreported slower sales growth after demand for its consumer goods was hit by the devaluation of a handful of emerging market currencies and other factors such as rising onion prices in India.

“This is a soft quarter without a shadow of a doubt,” Chief Financial Officer Jean Marc Huet told Reuters in an interview On Thursday.

The Anglo-Dutch maker of Ben & Jerry’s ice cream, Lipton tea and Dove soap posted a 3.2 percent sales increase in the third quarter, down from 5 percent in the second.

It had already warned in September that a slowdown in markets such as Indonesia, Brazil and India had accelerated and it expected quarterly underlying sales growth of only 3 percent to 3.5 percent.

More from Business

Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution

[caption id=“attachment_1192981” align=“alignleft” width=“380”]  Reuters[/caption]

Unilever generates more than half its annual sales from developing and emerging markets, where sales rose 5.9 percent in the quarter - down from 10.3 percent in the previous three months but still stronger than the slight decline seen in developed markets.

Turnover fell 6.5 percent to 12.5 billion euros, hurt by an 8.5 percent hit from foreign exchange rates.

“The reality is that the global economy is not in as good shape as some would like to make out,” Chief Executive Paul Polman said on a conference call. “I believe we have to calibrate our expectations a little more as we navigate these choppy waters.”

Impact Shorts

More Shorts

Chennai Ranks #1 in Challan Checks: ACKO Insights for Smarter Car and Two Wheeler Insurance Decisions

Tata Harrier EV vs Mahindra XEV 9e: Design and road presence compared

Polman added that in three decades operating in emerging markets, he had never seen such large declines in so many currencies at the same time.

“Whilst we normally can deal with one or another and compensate for that globally, this really came as a shock to the global economy in total,” he said.

Uncertainty over when the US Federal Reserve will scale back its bond-buying stimulus led to sharp falls in currencies such as the Indian rupee and the Brazilian real between May and September.

The drops were compounded, Polman said, by other factors including a government abolition of fuel subsidies in Indonesia and a more than trebling in the price of onions in India - a staple cooking ingredient - that further weighed on consumers’ buying power.

CROSSING CATEGORIES

Unilever’s performance looks relatively weak compared with peers such as Nestle (NESN.VX), the world’s biggest foods group, which said last week competitive pricing helped it lift sales growth in spite of tough conditions in emerging markets and Europe.

Reckitt Benckiser (RB.L) earlier this week reported higher-than-expected sales and raised its outlook.

Huet said Unilever’s business crosses so many categories, including basics like shampoo and food used by people at all levels of the economy, while Reckitt’s goods - like dishwasher detergent and headache tablets - appealed to higher-income consumers more immune to economic volatility.

Unilever’s currency hedges typically give it a window of three to six months, during which time it can work to raise prices in local markets hurt by devaluations. Selective increases are expected to help in the coming quarters, it said.

For the full year, currency should hurt sales by about 6 percent and profit by about 7 percent, Huet said.

In North America, third-quarter sales volume fell due to a decision to stop selling some low-margin ice cream products and continued weakness of the company’s margarine business.

Also, Unilever’s market share in the high-margin personal care business was hurt by promotions by rival Procter & Gamble (PG.N), whose Pantene and Herbal Essences shampoos compete with Unilever’s Tresemme.

The company said it expects sales growth to improve in the fourth quarter, helped by new products such as Vaseline body sprays in Europe and Tony & Guy hair products in the United States. Still, Polman said developed markets like the United States were not recovering as fast as expected.

Following the divestiture of some less-profitable brands including Skippy peanut butter and Wishbone salad dressings, Polman said there were some small businesses left to sell but he declined to name them.

“It’s better to announce the sale than to preannounce the intention,” Polman said.

Unilever shares were up 0.7 percent in London at 1045 GMT.

Reuters