Unilever May Report Fastest Sales Growth Under Polman’s Tenure

Unilever may report the fastest quarterly sales growth since Chief Executive Officer Paul Polman took the helm two years ago as the company raises prices to combat soaring raw material costs.

The world’s second-largest maker of consumer products may say tomorrow that underlying sales of its products, including Dove lotions and Marmite spread, grew 5.8 percent in the second quarter, according to the median estimate of 10 analysts surveyed by Bloomberg News. The gain, which excludes the impact of acquisitions, disposals and currency swings, would be the greatest since the last quarter of 2008.

“The reason sales are looking good is because there’s more pricing, and there’s more pricing because there’s more input costs,” said Harold Thompson, an analyst at Deutsche Bank in London. “If organic growth is more than five percent, that’ll be seen as very good.” Thompson estimates sales rose 5.2 percent last quarter.

The amount of goods sold may have increased 3.2 percent, compared with a 2.5 percent rise in the first three months of the year, according to Bloomberg data. Unilever may say prices grew 2.6 percent, the most since the first quarter of 2009. The company raised prices in the first quarter to combat an increase in the price of commodities such as palm oil, which is used in spreads, soup, ice cream and soap.

Knorr Goes Jelly

Polman, who took over at London- and Rotterdam-based Unilever in January 2009, has introduced products such as Knorr Jelly bouillon to new markets including Brazil. He aims to double sales by expanding in faster-growing emerging markets and selling more health and personal-care products. Polman bought Sara Lee Corp.’s shower-gel and European detergents unit and Alberto Culver Co., adding the hair-care brand Nexxus.

Unilever, like rivals Danone and Nestle SA, is suffering as raw-material prices increase, sapping profit margins. Danone reported first-half profit that missed analysts’ estimates last week as higher costs for commodities, particularly milk and plastic, held back profit improvement even as the company boosted sales growth by a greater-than-estimated 8.7 percent. Nestle reports results next week.

Prices for three-month put options to sell Unilever’s Amsterdam-listed shares are 38 percent higher than calls to buy, a two-month high, according to Bloomberg data, reflecting concern that slowing sales in Europe and high commodity prices may stint profit.

Margin Questions

Unilever in April said that first-half profitability would drop before recovering in the second half and commodity costs would amount to about 500 to 550 basis points of revenue this year. Analysts anticipate a reduction of 50 basis points in the so-called underlying operating margin in the half, according to the median of nine estimates.

“Margins will fall, but it’s the scale of the fall that’ll be looked at and more importantly how they’ve limited that fall,” Thompson said, citing expected cuts to advertising and promotional spend.

Analysts at MF Global including Andy Smith wrote in a note dated yesterday that Unilever may abandon its guidance for an improvement in full-year profitability if the margin narrows by 90 basis points, which they forecast. Smith has a “sell” rating on Unilever.

To contact the reporter on this story: Clementine Fletcher in London cfletcher5@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

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