Unilever Hurt by Personal-Care Slowdown as Margins Set to Shrink

Unilever (UNA), the maker of Magnum ice cream and TRESemme shampoo, forecast weaker first-half profit margins and reported the slowest sales growth at its personal-care unit in more than three years, sending the shares lower.

Increased spending on advertising and restructuring in the first six months will weigh on profitability, the London- and Rotterdam-based company said today, predicting a rebound in the second half. A 4.5 percent gain in underlying sales of personal care items such as Dove soap was the lowest since 2010, taking the gloss off estimate-beating sales for the wider group.

The margin outlook “is likely to upset consensus” estimates for a 20 basis-point increase in the first half, Celine Pannuti, an analyst at JPMorgan Chase & Co., said in a note. Personal care “disappointed,” she wrote.

Unilever fell as much as 1.8 percent in Amsterdam trading, also reflecting a slowdown in emerging-markets growth. The company gets more than half of sales from developing countries, where political uncertainty and weak currencies have reined in growth. Unilever also fueled talk of disposals by announcing a review of its North American pasta-sauce and Slim Fast units.

The slowdown in personal-care sales growth from 7.3 percent in the fourth quarter was notable in light of increasing competition from Procter & Gamble Co. (PG) P&G, the world’s largest consumer-products maker, said yesterday that new shampoos and deodorants contributed to a 2 percent rise in organic sales for its beauty segment. Jon Moeller, Chief Financial Officer of the Cincinnati-based company, said Pantene shampoo, which competes with Unilever’s brands, had a “reasonably good” quarter.

‘Big Problems’

“If that business starts to struggle, Unilever has big problems,” Andrew Wood, an analyst at Sanford C. Bernstein, said of the personal-care unit by e-mail.

Unilever said its largest division, which includes Rexona shower gel and Pond’s skin cream, still increased sales by more than the wider market, driven by product innovation that has included compressed versions of Lynx aerosol deodorants.

Underlying revenue in emerging markets rose 6.6 percent in the quarter, slowing from 8.4 percent in the previous three months. Growth in those economies continued to weaken, particularly in South and Southeast Asia, Unilever said. Russia and Thailand both showed “slight declines” in sales.

Unilever fell 1.6 percent to 30.19 euros at 12:01 p.m. in Amsterdam, the second-biggest drop in the Dutch AEX Index.

Group underlying sales gained 3.6 percent, beating the 3.3 percent median estimate of 10 analysts surveyed by Bloomberg.

Europe provided the main positive news, with growth of 0.1 percent, compared with the fourth quarter’s 1.3 percent drop. Ice cream sales in the region were particularly strong, helped by a period of warm weather in March, Unilever said.

Pruning Brands

The announcement that the company is reviewing the North American pasta sauces and Slim Fast units confirmed earlier reports and forms part of Chief Executive Officer Paul Polman’s ongoing pruning of food brands. Unilever sold Skippy peanut butter and Wish-Bone dressings last year, and its European meats business including the Peperami brand in February.

Chief Financial Officer Jean-Marc Huet declined to comment today on whether the company had received any interest from bidders in the units. Unilever has hired Morgan Stanley to sell the sauce unit and expects to get between $1.5 billion and $2 billion, people with knowledge of the matter said in March.

A sale of Slim-Fast would follow Nestle SA (NESN)’s disposal of diet businesses. The Swiss company agreed in November to sell most of its Jenny Craig unit for an undisclosed amount.

Seeking Acquisitions

“We’ve taken lot of steps to improve our portfolio in North America and are coming to an end of the overall review,” Huet said in a telephone interview.

Unilever would consider returning surplus funds to shareholders should proceeds from disposals “significantly exceed” acquisition prospects, Huet said on a conference call with analysts. That’s not currently the case and Unilever has no present plans to start a share buyback program, he said.

The company is pursuing “bolt-on” acquisitions and is seeking to add to its existing divisions, Huet said.

“We’re always on the lookout for assets,” he said.

To contact the reporter on this story: Paul Jarvis in London at pjarvis@bloomberg.net

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

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