Unilever's sales rebound masks murky outlook

LONDON (Reuters) - Unilever ULVR.LUNA.AS held back from celebrating a much stronger-than-expected return to sales growth in the third quarter on Thursday, as the CEO said the outlook remained "highly unpredictable".

Underlying year-on-year sales rose 4.4% for the Anglo-Dutch maker of Dove soap, Hellmann’s mayonnaise and Tresemme shampoo. Analysts on average were expecting an increase of 1.3%, according to a company-supplied consensus.

The upturn was led by emerging markets, which contribute about 60% of Unilever’s revenue. Sales there rose 5.3% from the previous year, while developed markets rose 3.1%.

However, Unilever declined to give any short-term performance targets, with CEO Alan Jope saying he was “perplexed by talk of a quick recovery” from the coronavirus pandemic and its economic fallout.

“We’ve moved from response mode to now living with COVID-19, but the environment that we’re operating in remains highly unpredictable and we believe, an economic downturn is inevitable,” Jope said.

The company said gross margins in the second half of the year would be pressured by higher COVID-related costs, commodity prices and marketing spend, as well as currency fluctuations and a shift in the sales mix toward less profitable products, such as ice cream eaten at home.

Like its larger peer Nestle NESN.S, Unilever has been buying assets to get more exposure to fast-growing categories like vegan foods and premium beauty and moving out of slower categories like margarine and tea.

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Nestle reported a strong acceleration in third-quarter sales and raised its outlook on Wednesday.

Unilever withdrew its annual sales growth target in April.

In North America, which includes the United States, Unilever’s biggest market by revenue, growth of 9.1% continued to be driven by increased demand for food eaten at home.

“The shift of consumption towards in-home seems to be providing a strong tailwind to the sector and is outweighing any exposure to the out-of-home market,” said Bernstein analysts.

Overall turnover was 12.9 billion euros, versus analysts’ estimates of 12.7 billion euros ($15.05 billion).

Unilever's sales had fallen UNA.AS 0.3% year-on-year in the second quarter, the first drop in 16 years, hurt by steep declines in food eaten out of the home and the pandemic's impact on emerging markets.

The group is planning to unify its dual-headed corporate structure into one London-based entity in a process expected to complete next month.

Unilever said it intends to proceed with its plan despite an “exit tax” proposal from a Dutch opposition party.

Its shares were up 0.8% at 0903 GMT, having gained about 8 percent this year through Wednesday, while the FTSE 100 .FTSE has fallen 23%.

Reporting by Martinne Geller;Editing by Elaine Hardcastle