Analyst: Unilever should consider ditching spreads if things don’t improve
In a note on Unilever’s Q1, 2013 results, Graham Jones, executive director of equity research for consumer staples at Panmure Gordon, said: “Spreads must be reaching the point now where it is on notice that if it doesn’t improve it will be considered for disposal, although we wouldn’t expect Unilever to admit this publically.”
While savory and dressings continued to grow in the quarter, he said, “Spreads was the real area of weakness, and we question whether it is getting to the stage when Unilever needs to start considering disposals in this persistently disappointing category.”
We question whether it is getting to the stage when Unilever needs to start considering disposals
In general, Unilever had made a “disappointing start to the year, with weaker than expected progress in particular in Europe and in the Spreads category globally”.
However, Unilever remains well positioned for growth owing to its growing presence in emerging markets (now accounting for 57.6% of sales) and strong growth in personal and home care, he said.
While developing markets growth was up an impressive 10.4%, developed market trading was disappointing, with like-for-like sales falling by 1.9%. Sales in North America were up just 0.3% and sales in Europe declined by 3.1%.
Once again, spreads are dragging the business down
In general, foods continues to “fall in importance”, now accounting for just 27.7% of group sales, down from 29.4% last year, he said.
“We think Unilever should continue to focus on selective disposals to reduce the growth drag further.”
Sanford Bernstein analyst Andrew Wood agreed: “Once again, spreads [which account for 7% of Unilever’s sales] are dragging the business down.
"It seems like we have been seeing/hearing 'We have more to do to communicate the improved taste and health benefits of our margarine to consumers' for most of the last decade.”
We know margarines are healthy but consumers are not perceiving them to be natural versus butter
Speaking to analysts on the Q3 earnings call yesterday, executive director and chief financial officer Raoul Jean-Marc Sidney Huët said that promotional activity in Europe had hit volumes in the margarine category, while private label and butter had gained.
“To reverse this trend, we need to win on taste and improve the communication of the health credentials of our brands”, he said.
“We probably underestimated how long it would take to make some of these important changes. We are, however, confident that we're on the right track, and we do expect to see an improved performance in the remainder of the year and beyond.”
Head of Investor Relations, M&A and Strategy, James Allison added: “We know that margarines are particularly healthy but consumers are not perceiving them to be natural versus butter.”
