July 25 (Bloomberg) -- Unilever, the world’s second-biggest consumer-goods maker, reported quarterly sales that missed estimates and said growth is slowing in emerging markets while conditions remain difficult in the U.S. and Europe.
So-called underlying revenue rose 5 percent in the second quarter, the Anglo-Dutch maker of Lipton tea said today in a statement. That fell short of the average estimate of 14 analysts polled by Bloomberg for a 5.3 percent increase.
Sales in developing markets rose 10.3 percent in the second quarter, the company said, little changed from the pace of the first three months. Chief Executive Officer Paul Polman said on a conference call that it’s not “realistic” for growth to remain at those levels after nine straight quarter of double-digit gains, given the tougher economic conditions.
“Slowing does not mean crashing,” Andrew Wood, an analyst at Sanford C. Bernstein, said in a note today. “Despite slowing emerging markets, Unilever still delivered double-digit growth, which was basically in-line with the first quarter.”
Unilever fell 1.8 percent to 30.42 euros at 11 a.m. in Amsterdam trading, trimming this year’s gain to 5.5 percent.
“Growth is slowing in emerging markets, as macroeconomic headwinds influence consumer behavior,” the company said today in a statement. “Within this overall trend we see a mixed picture across the major countries.”
Slackening economic growth in nations such as India and China is a concern to Unilever, which gets about 57 percent of sales from developing regions. The MSCI Emerging Markets Index, a barometer of developing economies, has fallen 6.2 percent over the past three months, with the likes of Nestle SA and Coca-Cola Co. citing weakness in newer markets.
While Unilever’s sales growth was strong in Latin America, Africa and Southeast Asia, south Asia was “a little less so,” Chief Financial Officer Jean-Marc Huet said by phone.
In India, Unilever sees “an overall slowdown of the market, as well as the consumer, and in our business to a certain extent,” Huet said.
Earlier this month, Unilever spent 2.45 billion euros ($3.2 billion) to boost its stake in its Indian subsidiary to 67 percent from 52 percent. Hindustan Unilever Ltd. is due to report first-quarter earnings tomorrow. India is Unilever’s second-biggest emerging market based on sales, following Brazil.
Coca-Cola, the world’s biggest beverage company, said this month that profit declined for a second straight quarter as sales were sapped by economic weakness in China, unseasonable weather in places such as India, and depressed consumer spending in Brazil.
Consumer spending “is still flat” in the U.S., Polman said on a conference call, reflected in a 2 percent decline in North American underlying sales in the quarter. That compares with a 3.3 percent gain in the same period last year.
“Developed markets remain sluggish with little sign of any recovery in North America or Europe,” the company said. Revenue declined 1.3 percent in developed markets and 0.8 percent in Europe, with ice-cream products hurt by cool weather and sales of spreads such as Flora margarine continuing to decline.
Polman told analysts that he’s “as frustrated as you are” with the performance in spreads, saying “I have not delivered.” Unilever has changed the taste of Flora and recently named a new executive, Sean Gogarty, to run the business, which makes up about 7 percent of sales.
Pablo Zuanic, an analyst at Liberum Capital, has pushed for a sale of the spreads unit to focus more on faster-growing personal-care items like TRESemme hair care and Axe body sprays, sales of which increased 7.7 in the quarter.
Unilever said the volume of goods sold rose 3 percent in the second quarter, meeting estimates. Higher prices for shampoos and teas also contributed to sales growth, yet Huet said he doesn’t expect to raise prices further in developed markets in the second half.
Total revenue in the quarter rose 0.6 percent to 13.3 billion euros. Underlying sales growth excludes the effect of acquisitions, disposals and currency fluctuations.
The core operating margin, a measure of profitability, widened by 40 basis points to 14 percent in the first half, helped by tighter controls on costs in the laundry business and the introduction of more profitable innovations such as Dove Repair Expertise shampoo and Magnum 5 Kisses ice cream.
Net income in the first half rose 14 percent to 2.43 billion euros, beating the 2.33 billion-euro average estimate of six analysts compiled by Bloomberg.
“There was scope for Unilever to disappoint, but its first-half results and confident outlook statement remind us of the progress made by Unilever in recent years,” Deutsche Bank AG analyst Harold Thompson said in a note to clients.
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