Unilever warns of reduced growth
A FLASH PowerPoint presentation can only paper over so many expensive problems. Just ask Unilever shareholders.
Yesterday, the consumer goods giant warned that sales growth in its fiscal first half will fall short of its 3 to 5 percent target for the full year. The shares sank as much as 4.5 percent.
The message and the way it was disclosed – coughed out in a presentation at a conference organised by Deutsche Bank – are both concerning, especially for a company that was the subject of a $143 billion (R1.9 trillion) bid from The Kraft Heinz Company last year.
Unilever blamed the slower-than-expected growth on strikes in Brazil, which would cut revenue by €150 million (R2.35bn) in the second quarter. That seems like a lot. Analysts at RBC note that a hit of that size would amount to 16 percent of total sales in Brazil, which in turn account for 6.5 percent of global revenue.
Unilever is confident it will still meet its target for the full year. That implies it will have some catching up to do over the remainder of 2018.
That looks a tall order. Although Unilever sold more bottles of shampoo and deodorant in the first quarter, pricing was stubbornly weak. It was already hoping that consumers would be prepared to pay more in the remainder of the year and ease the pressure on margins.
The stumble comes at a delicate time for Unilever. It has upset some investors with plans to move its headquarters to Rotterdam. The company also said yesterday that it was “extremely unlikely” to remain in the FTSE 100 index after the move.
After being a takeover target last year, Unilever can’t afford any vulnerability. Stung into action by Kraft Heinz’s bid, chief executive Paul Polman embarked on an overhaul – selling off the spreads business, cutting costs and announcing big share buybacks. At first, that helped to revive the stock price, but its effect has waned.
Kraft Heinz, though, isn’t in a strong position to come back. Its shares are down 38 percent since the approach in February 2017, hardly a mandate for large scale merger and acquisition activity. – Bloomberg