Unilever Results Disappoint as Hurricanes Hit U.S. Sales -- Update

By Saabira Chaudhuri Features Dow Jones Newswires

Unilever PLC on Thursday reported weaker third-quarter revenue growth as the maker of Breyers ice cream and Dove shampoo struggled with lower sales in developed markets.

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Unilever's sales for the third quarter climbed just 2.6% on an underlying basis to EUR13.2 billion ($15.56 billion) driven mostly by price rises. That's a slowdown from a year ago when Unilever reported growth of 3.2% and is also sharply below the 3.9% analysts were expecting.

Shares in the company traded down 3% in early trading in London.

Like its peers, Unilever -- which also owns Axe deodorant and Lipton tea -- has been suffering through a double whammy of headwinds. Consumers in major, developed markets are abandoning the big brands Unilever has for decades relied on for steady growth, increasingly opting for niche, organic, local brands they see as more desirable. In emerging markets, Unilever and others are facing more competition from increasingly sophisticated local players while coping with macroeconomic disruptions in big markets like India and Brazil.

The tumult has attracted activist investors like Nelson Peltz to Procter & Gamble Co. and Dan Loeb to Nestle SA, and created an opening for Kraft Heinz Co. earlier this year to approach Unilever, which rejected a $143 billion acquisition attempt. On Wednesday, consumer-goods giant Reckitt Benckiser PLC said it would split into two separately managed divisions in an attempt to jump start growth, a move analysts say opens the Slough-based owner of Durex condoms up to activist pressure to eventually sell one of the divisions.

In developed markets, Unilever said underlying third-quarter sales fell 2.3%, driven by a 2.9% drop in North America, where the company said it was hurt by hurricanes in Florida and Texas, its second and third biggest states by sales. Natural disasters in the Caribbean also took a toll.

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"There's really no growth in the U.S. business," Unilever Chief Financial Officer Graeme Pitkethly said in an interview. "But the big one-off impact that caused us to miss against consensus this quarter were the hurricanes in Florida and Texas."

Earlier Thursday, Nestle reported organic sales growth of 2.6% for the first nine months of the year, a slowdown from the 3.3% it reported a year earlier. Nestle, like Unilever, flagged flat sales in North America where it said the environment was difficult.

For Unilever, emerging markets were a bright spot, with underlying sales up by 6.3% helped by improvements in China and India.

Unilever has made a string of acquisitions in high-growth areas lately, agreeing to buy Weis ice cream in Australia, Pukka Herbs tea in the U.K., Carver skin care in Korea, and Mãe Terra organic food in Brazil. The acquisitions, while relatively small for a company with a market capitalization of $180 billion, are one way Unilever is trying to adapt to the rapidly changing landscape. The company is also undertaking a restructuring aimed at helping it compete better with local rivals in markets around the world.

The moves come as the Anglo-Dutch consumer goods giant tries to raise shareholder returns after fending off Kraft in February. Since then, Unilever has said it will look to sell or spin off its spreads arm, where sales growth has long been declining. It has also launched a share buyback and set a new operating margin target of 20% by 2020.

For the third quarter sales declined by 1.6% on a reported basis, with a 5.1% drag from foreign-exchange movements. Profit figures weren't disclosed.

The company's homecare arm reported sales growth of 4.6% but personal care, an area Unilever has been bulking up in, reported growth of just 1.8%. The foods business reported a 1.5% rise in sales, while its refreshment unit -- which houses tea and ice cream -- rose 3.1%.

Unilever confirmed its annual guidance for underlying sales growth of 3% to 5% for the year and a rise of at least 1 percentage point in its underlying operating margin. But RBC analyst James Edwardes Jones noted that achieving this guidance "looks like a stretch" given the 2.8% sales growth Unilever reported for the first nine months.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

October 19, 2017 03:45 ET (07:45 GMT)