Unilever turns cautious on emerging markets

Unilever has become more cautious about prospects for emerging markets, a big growth driver for the consumer goods company, which reported underlying second-quarter sales growth shy of market expectations.

The Anglo-Dutch maker of Ben & Jerry's ice cream and Dove skincare products said on Thursday emerging markets' growth was slowing as a result of broader economic weakness that was having an impact on consumers.

Chief Financial Officer Jean-Marc Huet said Unilever was still seeing double-digit growth in emerging markets, but it would not be immune to wider economic trends.

"We don't want to give the impression that this (level of growth) can continue forever if the (general macro) slowdown continues," he said in an interview on Thursday.

Unilever's gloomier assessment of emerging markets' resilience adds to uncertainty about the ability of these countries, including China and Brazil, to sustain their high-growth levels and compensate for weakness in mature markets in Europe and the United States.

Huet said he saw no signs of recovery in southern Europe.

"We are sharper on cost than we've ever been, we innovate on cheaper products more than we have before and we are much more careful with the portfolio," he said.

The company's caution on emerging markets contrasted with an update from fragrance and flavor maker Givaudan which has benefited from emerging market consumer demand.

Unilever's sales slowdown in emerging markets quarter on quarter was only 0.1 percentage points, with growth of 10.3 percent in the three months to end June.

The group reported underlying sales growth overall of 5 percent compared with a consensus of 5.5 percent.

Keith Bowman, equity analyst at Hargreaves Lansdown, said Unilever was still seen as a barometer for global economic health, so today's news was somewhat disappointing.

"Europe and in particular Southern Europe remain difficult, while China remains squarely in focus," he said.

Shares in Unilever were trading down 2.1 percent at a three-week low of 2,661 pence at 1013GMT, underperforming a 1 percent weaker FTSE 100 index .

NEW PRODUCTS

Unilever, which also makes Flora spread and Hellmann's mayonnaise, said it was currently still seeing healthy volume growth led by Indonesia, Vietnam, Pakistan and China.

The group said Latin America posted an eighth quarter of double-digit growth, while North America declined by 2 percent.

In Europe, underlying sales were down 0.8 percent, dragged lower by price cuts.

In terms of product groups, its home care and personal care divisions performed best, with underlying sales up by 10.2 percent and 7.7 percent respectively.

Huet said innovations such as better liquid detergent and more package sizes were proving popular with consumers.

"That's also how we've driven the margins in laundry, still at a low level but up 170 basis points which is no mean feat," he said.

In consumer care, Unilever also performed better than cosmetics group L'Oreal , which reported a smaller-than-expected 5.2 percent rise in second-quarter underlying sales earlier this month.

But Unilever's foods sales were held back by a poor performance in its spreads business, with underlying growth of 1 percent, and adverse weather earlier this year in Europe hit ice cream sales.

The company, which reported before rivals Procter & Gamble and Nestle , said it had made progress on improving its core operating margin, which rose 40 points in the first half to 14.0 percent.

(Editing by Kate Holton and Jane Merriman)