By Saabira Chaudhuri
LONDON-- Unilever PLC said Thursday its profit slumped 18% for
the first half of the year as sales growth slowed and the company
came up against a tough comparison with a year-earlier period
helped by gains on a sale.
The maker of Magnum ice cream, Dove soap and Axe deodorant
posted a first-half net profit of EUR2.49 billion ($2.72 billion),
compared with EUR2.82 billion for the same period last year, on
revenue that rose 1.8% to EUR26.99 billion.
Diluted per-share earnings fell 10% to EUR0.87 as Unilever's
results were compared with a year-earlier period that was buoyed by
a EUR1.32 billion gain tied to the sale of its pasta sauces brands
in the U.S. But after stripping out one-time items and currency
movements, per-share earnings rose by 8%, helped partly by a share
buyback.
The results show that Unilever continues to struggle with a soft
environment in both North America and Europe, although the company
is benefiting from its slant toward emerging markets.
Underlying sales--which strip out the impact of acquisitions,
disposals and currency movements--grew 2.9%, slower than the 3.7%
that Unilever logged for the same period last year but slightly
ahead of consensus analyst estimates.
Sales in emerging markets, where Unilever did 57% of its
business last year, grew 6% on an underlying basis, down a bit from
the 6.6% growth the company reported last year.
In North America, Unilever's sales edged down 0.9% on an
underlying basis as Chief Executive Paul Polman said the company
faced intense promotional battles in hair care as well as
destocking, or having to reduce inventory. "Every step we make
forward there's one step back," he said on a call with analysts. In
Europe, sales fell 0.7%, which Mr. Polman described as a slight
improvement as markets that were declining are now flat.
In an interview, outgoing Chief Financial Officer Jean-Marc
Huët--who will be replaced by Graeme Pitkethly in October--said the
markets in which Unilever operates are still weak. In North
America, he said the company saw "very little volume growth" and
came up against fierce promotions in areas like dressings and hair
care. In emerging markets, he said Latin America had done well
despite weakness in areas like Brazil and Argentina, but Southeast
Asia "isn't growing the same way it was two or three years ago."
China, he said, is back to single-digit percentage growth,
following a period where Unilever was forced to destock in the
country after demand fell.
Unilever has been pushing more high-end products in Europe and
North America, as the company works to offset what it characterizes
as a constrained mass market in these regions. On Thursday, it
indicated that the strategy helped first-half sales in its
personal-care, home-care and refreshments divisions.
The personal care arm--Unilever's largest--grew sales by 3% amid
increases in both volume and price. Unilever said it expects growth
to accelerate in the second half of the year and told analysts that
the personal-care business is now the world's second largest,
behind L'Oréal SA. However, the unit's operating margin declined by
20 basis points as the company spent more on marketing.
Overall, Unilever has been taking incremental steps to shift its
product portfolio away from slower-growing food and toward
higher-margin personal-care products and was recently reclassified
on the S&P and MSCI indexes from packaged food to personal
products.
Since March, Unilever has acquired four premium skin-care
brands--Murad, Dermalogica, Kate Somerville and REN--that sell at
drugstores and specialty-retail locations like professional salons
and spas.
Underlying first-half sales in the food unit rose 1.4%, as
Unilever said growth in cooking products in emerging markets and
soup in Europe was offset by weakness in spreads. Unilever has put
spreads into its own company from the start of this month, a move
it predicts should help jump-start growth, and one that some
investors think is a sign of a possible divestiture. Unilever has
said it has no immediate plans to sell spreads but said the new
structure will help it increase the speed with which it rolls out
innovations and will help it cut costs.
Underlying sales in the home-care arm grew 4.5%, helped by what
Mr. Huët described as more premium products like fabric
conditioners and pre-treatments. The unit's core operating
margin--which Unilever has pledged to double--grew 220 basis
points.
In the refreshments arm--which includes tea and ice
cream--underlying sales climbed 2.7% even as volumes fell, as the
company pushed higher-premium brands like Magnum Pink and Black
variants, Ben & Jerry's Cores range and new flavors of Breyer's
Gelato.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
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