Unilever shocks industry with revised profit expectations
lowering expectations for year profit growth to under five per
cent.
The company, which last year reported a turnover of nearly €43 billion, blamed stiff competition and poor weather for the pessimistic forecast.
"It goes without saying that we are very disappointed that we have had to issue a trading update this morning," said company director Patrick Cescau. "But we have done this because, as we have said on many previous occasions, as a business our over-riding objective is long term value creation for our shareholders."
The group, which owns brands such as Hellman's mayonnaise and Lipton tea, had previously said underlying 2004 earnings were likely to rise over 10 per cent. In revising its earnings guidance, Unilever cited substantially lower sales of ice cream and ready-to-drink Lipton teas in northern Europe due to poor weather, and heightened competition in consumer markets across Europe and Asia.
Poor weather in northern Europe has also hit sales of other major manufacturers. Coca-Cola, the world's biggest soft drinks maker, announced last week that profits would lag analysts' expectations.
"In the light of the poor July/August and the pressure on some of our market positions we do not consider it in the long term interest of the business to maintain our previous (low double digit) EPS guidance for 2004," said Unilever chairmen Antony Burgmans and Niall FitzGerald in a joint statement issued this morning.
"Top line growth is key to long term sustainable value creation, and here the recent performance is unacceptable. We are determined to put this right and we are therefore moving forward with the simplification of our operations and, most importantly, increasing investment behind our brands."
As a result of the revised forecast, Unilever shares in London dropped 5.7 per cent to 454-1/2 pence by 0824 GMT, while Unilever NV shares in Amsterdam fell 5.72 per cent to 47.10 euros.
Unilever also warned that sales of its 400 leading brands would fall in the third quarter of 2004, after it said the performance of these brands would be below the flat sales seen in its second quarter.
Sales of its 400 top brands, which make up over 95 per cent of group sales, rose 0.5 per cent in the first-half, and now the group is very unlikely to match hopes expressed in February when it saw growth improving from the 2.5 per cent rise seen in 2003.
Gross margin is expected to decline in the third quarter compared to last year, but Unilever moved to reassure investors about its highly profitable ice cream division, which has a strong influence on margins. It said it was losing some share at the bottom of the market and this was not from innovations such as Cornetto Soft ice or Magnum. "Share was lost mainly in the in-home part of the market," the company said.
Moreover, in spite of the difficult trading environment, Unilever reminded its shareholders that the business remained able to finance the necessary investment in its brands and to respond flexibly to the specific circumstances of individual markets, while maintaining its outlook for low double digit earnings growth for the year.
Unilever says it has already put into action plans to address the lack of growth in areas of under-performance. Slim Fast was fully re-launched during the 3rd quarter of 2004, and the company's Prestige business has been reshaped.
Within the frozen foods segment, the group is carrying out additional restructuring and some further realignment of the portfolio. Unilever's core frozen foods range in Europe is being repositioned to respond to growing consumer interest in healthiness and freshness.
"We believe our model provides us with the flexibility we require to adjust to fluctuations in market and competitive positions and we remain committed to the long term financial targets of ROIC and growth in free cash flow delivery as our main value creation metrics," said the company.
"In light of the current market environment, we will clearly want to reassure ourselves, and the market, that our business remains competitive and equipped for sustained profitable growth."
