Unilever has warned of a slowdown in emerging markets, in a surprise market update that saw its share price tumble in early trading on Tuesday.
The Anglo-Dutch consumer goods giant said late on Monday that it had seen weakening growth in many emerging markets in the third quarter, and adjusted its expectation for underlying sales growth to 3 to 3.5% in the quarter. This compares to 5% underlying sales growth in the first half of 2013, and 6.9% in 2012.
“The emerging market slow-down has accelerated as a result of significant currency weakening. Developed markets remain flat to down,” the company said.
The company’s share price dropped 3.7% in early trading on the London Stock Exchange following the announcement, its biggest slip in two years.
More than half (57%) of Unilever’s sales come from emerging markets, and its business in India, Bangladesh, Brazil and Russia has been particularly hard hit by weaker currencies.
“Whilst management says it expects USG to improve through Q4 2013, we believe given a lack of visibility at this stage it is prudent to assume 3-3.5% growth for the remainder of 2013 and also into H1 2014,” wrote Shore Capital market analysts Darren Shirley and Clive Black in an investor note.
The analyst firm has downgraded its earnings forecast by about 3% for the rest of 2013 and by 7% for 2014.
“Our revised revenue growth and margin assumptions may prove too cautious over time, but given the lack of visibility on further [emerging market] currency weakness and hence the potential for a further negative impact on in-market momentum, we believe it is sensible to take a more cautious approach to future growth forecasts,” the analysts wrote.
Unilever CEO Paul Polman said in a statement that Unilever remained on track to meet its goals this year, despite the slower than expected emerging market growth.
“We continue to grow ahead of our markets and expect underlying sales growth to improve in quarter four,” he said. “For 2013 we are still on course to deliver against our priorities of profitable volume growth ahead of our markets, steady and sustainable core operating margin improvement and strong cash flow.”