Unilever Loses Profit Power – US-FOREX.US
Anglo-Dutch firm Unilever delivered what investors wanted on Thursday-a surprisingly good 2% rise in second-quarter volumes-but at what cost? The household goods company’s earnings sank 15% over the year, almost on par with rival Procter & Gamble’s disappointing profits drop, after it spent more on advertising and held back from hiking prices too much. Is this a one-off or the beginning of a worrying trend?Sanford C. Bernstein analyst Andrew Wood thinks the former. Although he expects Unilever
to report a 2% drop in earnings per share for the whole of 2009, he says that profitability will improve in the third quarter. The reason? Declining commodity costs, which will ease the recession’s squeeze on Unilever’s pricing power. The Anglo-Dutch firm hiked prices by 2.1% in the second quarter, but this was below expectations of 4%.Then again, it all depends on how successfully Unilever balances out easing cost pressures with advertising and promotions. “Strong advertising” was part of the reason why Unilever managed to strengthen sales of brands like Dove soap and Domestos cleaner, at a time when consumers might be tempted to switch to cheaper brands. Wood thinks the company will ramp up advertising even further in the second half of the year.Investors aren’t worried yet. Shares of Unilever soared 5.2%, or 98 euro cents , to 19.78 euros , during morning trading in Amsterdam on Thursday. Second-quarter sales grew by 1%, to 10.5 billion euros , while volumes rose 2%. This was particularly impressive given Procter & Gamble
’s 11% reported decline in sales and rival Henkel
’s 5% drop.”I am encouraged by the return to volume growth across all regions and the majority of countries and categories,” said Unilever Chief Executive Paul Polman. “We continue to focus on restoring volume growth while protecting margins and cash flow.”Consumer-goods rival Reckitt Benckiser
, maker of Harpic surface cleaner and air freshener Air Wick, reported a 20% rise in sales for the second quarter last month. But it is under threat from the impending loss of exclusivity on Suboxone, a treatment for heroin addiction, in the United States.