Unilever beats expectations, but warns of ‘negligible’ market growth

By Caroline SCOTT-THOMAS contact

- Last updated on GMT

Unilever says it plans to introduce more 'natural' products, like wet soups
Unilever says it plans to introduce more 'natural' products, like wet soups

Related tags: North america, Unilever, Europe

Unilever has reported better than expected second quarter results but warned of slow demand in emerging and developed markets alike.

Among its food and drink brands, the Anglo-Dutch consumer goods giant makes Knorr stock, Lipton tea, Hellman’s mayonnaise and Magnum ice creams, and also manufacturers a range of well-known personal care and home care brands. It reported 2.9% underlying sales growth during the Q2 period, beating the 2.6% growth predicted by analysts in a company-compiled consensus.

However, Unilever is recovering from a difficult year in 2014, when global volume sales were flat, hit by contracting sales in Europe and trade destocking in China.

“Consumer demand remains weak and volumes are flat in the markets in which we operate,”​ the company said in a statement on Thursday. “Emerging markets continue to be subdued, while in Europe and North America growth is negligible.”

The company has expanded its business in emerging markets in recent years, but Europe and North America still account for about 40% of its sales.

In the first half of 2015, global sales increased 12% to €27bn – higher than analysts’ expectations of €26.7bn – boosted 10% by favourable exchange rates. However, net profit fell 11% to €2.7bn in the first half.

Targeting volume growth

Company CEO Paul Polman said: “We plan for another year of volume growth ahead of our markets, steady improvement in core operating margin and strong cash flow.”

Its efforts to improve volume sales include a move toward more ‘natural’ products like Knorr wet soups, the company said, and it has also introduced premium-positioned ice creams, such as Magnum Pink and Black variants, Ben & Jerry’s Cores range and new flavours of Breyer’s Gelato.

In addition, Unilever has aimed to help address iron deficiency in Africa with new fortified stock cubes, and it has brought its squeezable Hellman’s packaging to North America, following on from its success in Europe.

Spin-offs and spreads

The company has been offloading parts of its business that do not fit in with its long-term plans in recent months. In February last year, it sold its meat snacks business​ including Peperami (sold in the UK and Ireland) and Bifi brand (sold in Germany, Benelux, Austria and Switzerland) to Jack Link. And the following May, it sold its North American pasta sauces business​, which makes Ragu and Bertolli brands, to Mizkan Group for $2.15bn.

It has also started a standalone business unit for its North American and European spreads​, which includes the brands like Flora, Becel and Rama. This was to counter tough markets as spreads had become a drag on the business, with sales falling 3.2% in the first nine months of 2014, and falling 3.1% in 2013. The new baking, cooking and spreads unit became operational at the beginning of July, and the company said it would “benefit from future focus as it continues to reposition the business to more attractive segments like melanges and premium cooking oil blends”​ as the spreads market continues to contract.

Unilever has insisted that splitting off its spreads division is not a sign that it is preparing to exit​ the sector.

Related topics: Manufacturers

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