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Unilever: Commodity costs are so unpredictable, but over the longer term, we just assume they will continue to rise

By Elaine WATSON , 25-Oct-2012
Last updated on 25-Oct-2012 at 17:28 GMT2012-10-25T17:28:02Z

Underlying sales growth in North America dipped 3.5% at Unilever in the third quarter of 2012, although emerging markets continue to “offer outstanding growth opportunities”, said the firm.

Unilever reported a 0.4% drop in its underlying food sales in the third quarter, although overall revenue was up 10.3%.

Speaking to analysts this morning, executive director and chief financial officer Jean-Marc Huet said: “Growth is difficult to come by in the developed markets… and this has led to an increase in promotional volumes.

“Emerging markets offer outstanding growth opportunities, but the competition here continues to be intense.  

“And then there are the commodity costs, which are so unpredictable, but over the longer term, we just assume that they will continue to rise.”

What is happening today may not be a good indication of what will happen tomorrow

He added: “Over the last 10 months alone, crude oil has been as high as $125 per barrel then as low as $90 and now back up to $110, with similar swings in a number of our other commodities that are particularly relevant for us.

“Look at cocoa. Look at tea. Look at different types of oils. While you can look at one specific cost and you can say it's gone down, I could give you a story for another raw material where it's gone up.”

“And there are other sorts of volatility that we face today, be it the impact of conflict in the Middle East, serious inflation in the Southern Cone, South America or the effect of weather patterns that we have not seen before. So what is happening today may not be a good indication of what will happen tomorrow.”

Our Foods business continues to grow more slowly

In these circumstances, he said: “We think that these are a solid set of results, demonstrating in particular the continuing strong momentum across emerging markets and Home and Personal Care.”

But he added: “Our foods business continues to grow more slowly, partly reflecting a footprint more skewed to the developed markets and partly reflecting some decline in our spreads business, where our prices have not been sufficiently competitive.”

Head of investor relations James Allison said: “On spreads, we've already taken action in the U.S., where there were some price gaps. We see already the benefit of that coming through in improved volume shares in the quarter.”

Ice cream delivered another strong quarter of underlying sales growth

In Foods, overall Q3 underlying sales growth was - 0.4%, impacted in part by sales brought forward in Q3 of 2011, he said. Beverages growth improved in the quarter “but still lags market growth”, while ice cream saw positive volume and price, with underlying sales growth of 8%.

“Ice cream delivered another strong quarter of underlying sales growth, this time nearly 8%. This comes from a combination of solid momentum in developed markets and strong growth in emerging markets. Our increasingly global footprint in ice cream is driven by the rollout and success of our strong portfolio of global brands, i.e. Ben & Jerry’s, Cornetto and Magnum.”

In the US, new flavors of Magnum, improved advertising and promotional support and the successful introduction of Magnum Minis are sustaining the strong brand performance in the second year after launch, he said.

Click here to read more about the results.