The Anglo-Dutch maker of brands like Dove and Knorr is battling high input costs from rising commodity prices such as crude and vegetable oils, and slow growth in developed nations. It also cautioned that emerging market growth has started to slow especially in eastern Europe and Russia.
“The competition is intense, we have seen some moderation in emerging market growth while developed markets remain muted, but we have had a good start to the year and we are becoming more competitive,” finance director Jean-Marc Huet told a briefing.
Unilever, the world’s No. 3 consumer goods group, is holding to its forecast for modest profit margin expansion this year, albeit weighted towards the second half of the year when some of its commodity costs are expected to ease as expensive forward hedges fall away.
“Despite the one-off tailwinds, this reads as a still-strong quarter to us,” said analyst Martin Deboo at brokers Investec.
Unilever Plc shares were up 3.1 pct at 2,143 pence by 0826 GMT, in a firmer FTSE 100 .FTSE. The stock has underperformed European food and beverage stocks .SX3P by almost 10 percent so far this year.
The company, with annual sales of 46.5 billion euros, reported that first-quarter underlying sales rose 8.4 percent beating a company-compiled forecast of 6.4 percent, and compared to growth of 6.5 percent in 2011.
Emerging markets, which make up 56 percent of Unilever’s business, grew 11.9 percent.
Within categories personal care led the field with growth of 10.4 percent. The group’s Clear anti-dandruff shampoo, recently launched in the U.S., was the fastest growing overall brand.
Unilever’s 8.4 percent growth was ahead of the world’s No 1 food group Nestle NESN.VX, which showed first-quarter sales growth of 7.2 percent, and France’s Danone (DANO.PA), at 6.9 percent. U.S. rival Procter & Gamble (P&G) (PG.N) reports on the first three months of 2012 on April 27.
Unilever saw its commodity cost bill rise 15 percent last year. It expects around a 5 percent increase this year but that is showing signs of starting to creep higher again.
The competitive environment is also getting more intense: plans by P&G to cut costs by $10 billion are fuelling concerns about heightened competition in home and personal care products.
“The external macro-environment remains difficult and high input cost headwinds persist,” said Chief Executive Paul Polman in a statement.
Unilever, which also sells Lipton tea, Ragu sauces and Blue Band margarine, reported overall three-month turnover rose 11.9 percent to 12.1 billion euros, and it paid a quarterly dividend of 0.243 euros a share, up 8 percent from the previous year.
Editing by Sophie Walker