February 1, 2018 / 7:22 AM / 2 months ago

Unilever ends 2017 strongly but investors unimpressed

LONDON (Reuters) - Unilever (ULVR.L) (UNc.AS) reported a bigger-than-expected jump in fourth-quarter sales growth on Thursday, its best performance in six quarters, as emerging markets helped drive a rebound in the number of consumer products sold.

FILE PHOTO: A woman stands behind a machine that is part of a toothpaste manufacturing line at the Unilever factory in Lagos, Nigeria January 18, 2018. REUTERS/Afolabi Sotunde/File Photo

However, a sharp slowdown in price increases from the previous quarter kept shares in the maker of Dove soap and Ben & Jerry’s ice cream on the defensive, as investors worried whether it would be able to pass on rising commodity costs to shoppers.

Unilever - which spent most of last year reviewing its business after rebuffing a $143 billion takeover bid in February - said underlying sales rose 4 percent. Analysts on average expected 3.7 percent, according to a company-supplied forecast.

That marks an improvement from 3 percent in the first half and 2.6 percent in the third quarter. Unilever touted an improvement in some emerging markets such as India and Brazil.

Since the failed takeover bid by Kraft-Heinz (KHC.O), Unilever has bought back shares, committed to a margin target, struck a deal to sell its shrinking margarine and spreads business and announced that it wants to end its dual-headed Anglo-Dutch structure.

In November, it said it favored a single structure but was delaying a decision on where it would be based, due partly to heightened political sensitivity over Brexit.

On Thursday, Chief Executive Officer Paul Polman said talks with the British and Dutch governments were progressing and an announcement would come in the current quarter.

The company also said it planned to complete the sale of the spreads business by the middle of the year, receiving about 6 billion euros that it will return to shareholders if it can’t find value-creating acquisitions to spend it on.

Underlying earnings per share for 2017 were 2.24 euros, above analysts expectations for 2.21 euros per share.


A strong ending to a tumultuous year did nothing to lift Unilever’s share price, which is still down about 12 percent since its disappointing third-quarter results.

In October, Unilever posted weak volume growth and investors feared it was due to cuts in marketing spending made under pressure to boost efficiency in the wake of the Kraft bid. Such cuts, they reasoned, would hinder growth longer term.

But growth in volume, or number of goods sold, jumped to 3.2 percent in the fourth quarter, from 0.2 percent in the third.

Yet, the company’s shares were roughly flat at 1318 GMT.

    Analysts pointed this time to fears over pricing growth, which slowed from 2.4 percent in the third quarter to 0.7 percent in the fourth.

    “I think what’s spooking the market is the dramatic collapse in pricing, particularly in Latin America and the worry that as commodity inflation resumes that will put the margins back under pressure,” said Jefferies analyst Martin Deboo, who has a “buy” rating on the stock.

    Unilever and its peers are struggling with changing consumer habits that support the rise of independent upstart brands at the expense of traditional names.

    In addition to its acquisitions, Unilever launched six new brands of its own last year, including a new line of personal care products called Love Beauty and Planet, and Red Red, a vegan snack pot inspired by a dish from Ghana.

    “While the initial signs are encouraging, Unilever still has much to do if it is to sustain this momentum over the coming years,” said Charlie Huggins, portfolio manager at Hargreaves Lansdown, who holds Unilever shares. “The world for all consumer goods companies is becoming tougher.”

    Looking ahead, the company forecast underlying sales growth of 3 to 5 percent for 2018 and an improvement in underlying operating margin and cash flow that will keep it on track for its 2020 targets.

    It said pricing growth would be higher in the second half of 2018, due to commodity cost rises and low inflation in Latin America.

    Reporting by Martinne Geller; Editing by Adrian Croft and Mark Potter

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