Wary spending crimps consumer goods; emerging markets give hope for growth
Consumer goods stalwarts Unilever PLC and Nestlé SA reported first-quarter sales that were weighed down by cautious spending in the U.S. and Western Europe on Thursday, forcing both companies to rely on emerging markets for growth.
Continue Reading Below
Unilever, which is under pressure after rebuffing a $143 billion bid from Kraft Heinz Co, reported that underlying sales -- which strip out the impact of currency volatility -- grew by 2.9% from the same quarter a year earlier, beating analyst estimates for growth of 2%.
The growth was driven by emerging markets, where underlying sales climbed by 6.1%. In developed markets, sales declined by 1.5%, as Unilever confronted an array of troubles in North America, where sales dropped by 1%.
Unilever Chief Financial Officer Graeme Pitkethly described the decline as "somewhat unexpected," citing a slowdown in tax refunds, concerns in the Hispanic community after President Donald Trump's election, bad weather and gas prices as possible factors.
Nestlé said first-quarter revenue grew by 2.3% on an organic basis -- which strips out the effects of currencies, acquisitions and divestments -- but was roughly flat from a year earlier. The company is also struggling with sluggish consumer demand in North America where its confectionery and pet care sales declined.
Both companies had particular issues in the U.S.: Nestlé faced intense competition in bottled water that forced it to cut prices; Unilever sales were hit by the resurgence of ice cream rival Blue Bell Creameries LP. The Anglo-Dutch company also said it faced a tough U.S. hair care environment, with competition from companies like L'Oréal SA and Johnson & Johnson.
Unilever and Nestlé also struggled with consumers trading down to cheaper brands in Brazil and with low inflation in mainland Western Europe.
Overall, Unilever, whose brands include Dove soap and Ben & Jerry's ice cream, reported a 6.1% rise in revenue to EUR13.3 billion ($14.3 billion), up from EUR12.5 billion a year earlier.
Unilever recently announced plans to sell or demerge its margarine and spreads division, combine its food and refreshments businesses and boost shareholder returns with a higher dividend and share-buyback program.
The revamp comes as Chief Executive Paul Polman tries to appease investors after rejecting the acquisition attempt by Kraft Heinz. The spreads division has struggled as consumers eat less bread and opt for butter over margarine and investors have called for years for its sale.
On Thursday, Unilever disclosed results from its spreads business for the first time, saying that overall underlying sales growth would have risen by 3.4% without the drag from that unit.
Mr. Pitkethly said Unilever has just begun the auction process for the spreads business and is hoping to attract interest from both private equity players and other companies. If Unilever doesn't get a high enough price it will choose to demerge the business and spin it off rather than sell it, he said. Mr. Polman had for years refused to sell the unit, saying no bidder had offered his asking price.
Analysts have estimated the business could sell for between EUR7 billion and EUR8 billion.
Unilever reported flat first-quarter sales in its foods division, including spreads, and 5.4% growth in refreshments, which includes tea and ice cream. In personal care, Unilever reported a 3.1% rise in underlying sales, while in home care, sales rose by 4.1%.
Nestlé reported 3.1% growth on an organic basis in its waters division, 1.1% acceleration in nutrition and double-digit growth in skin health.
Write to Saabira Chaudhuri at email@example.com
(END) Dow Jones Newswires
April 21, 2017 02:47 ET (06:47 GMT)