Unilever saw ice-cream sales across Europe suffer as a result of poor weather

Unilever saw ice-cream sales across Europe suffer as a result of poor weather

Unilever's third quarter underlying sales growth missed analyst expectations as the Hellmann's maker reported its spreads segment was still struggling, and ice cream sales were dampened by poor weather in Europe.

The Anglo-Dutch conglomerate reported underlying sales growth of 2.1%, missing consensus estimates of growth of 3.7% for the quarter. Turnover also declined 2% to EUR12.2bn. More broadly, the firm said it was hit by weakness in China as a result of many retailers reducing stock as consumer demand waned.

More specifically however, in foods, Unilever reported a fall in underlying sales for the quarter of 0.5% with the blame largely being laid on spreads which were challenged across Europe.

"Spreads faced strong headwinds from the decline of the margarine market and price deflation in a weak commodity costs environment. We gained significant market share in margarine but this was not sufficient to offset the overall decline of the category," Unilever said in its financial statement.

Spreads, for some time now, have been problematic for Unilever. Like most spreads' makers - Dairy Crest included - the Flora manufacturer has seen the decline of the margarine market drag down the performance of the rest of the spreads business - and hamper good performance from other areas of the food business such as the Knorr stock pots and Knorr Mealmaker ranges.

Earlier this year, the firm set out on a mission to turn the performance of its spreads category around. It forayed into new territories of blended spreads with the launch of Flora Gold and Bertolli with Butter in the UK on the back of "a great start" in other European markets. So far Unilever says it has introduced 10 butter blends across Europe over the last year.

James Allison, head of corporate strategy, M&A and investor relations, said so far, Bertolli and Rama - a spread launched in Germany - have performed "ahead of expectations".

And analysts have too, have been rooting for Unilever's spreads business as the firm focuses on improving its offering in the category. Though the spreads category appears shaky once again, in its first quarter there were "early signs of revival" with a lot of hope pinned on the success of blends.

Martin Deboo, analyst at Jefferies said at the time: "With Unilever now having famously lost their virginity on 'Melange' (margarine/butter combination, the growth segment)...there is suddenly more opportunity to go for".

Reassuring Unilever is on the right track to reviving its spreads business, Allison said from the time it outlined the plan, to the time when the category returns to a satisfactory performance "is a slow process".

In its refreshments category too Unilever delivered a disappointing performance. A poor European summer contributed to an underlying volume decline of 1.1%. Underlying sales growth was flat at 0.5%. Ice cream suffered in particular. CFO, Jean Marc Huet, said as the company grows its ice cream operations across emerging markets, the European market "is becoming less important". Nevertheless he conceded Europe "still moves the needle".

The firm also appeared to be banking on the success of the ice cream category as it moves to "sharpen its focus". Speaking of North America, Huet, said ice cream performed well, and "premium" innovations in Breyer's, Ben and Jerry's and Magnum were "boosting growth". The region overall, delivered positive underlying sales growth of 6.8%.

"Our performance was underpinned by the actions we have taken to make our distribution and manufacturing infrastructure more competitive and the changes we have made to sharpen our portfolio," the statement read. The disposal of Slim.Fast was completed in July.

More broadly however, the analyst world wasn't expecting spectacular results when it came to Unilever's food division this quarter.

Andrew Wood, analyst at Bernstein - in his notes before the results announcement - said of the refreshment segment, the weaker weather would mean "a slight sequential slowdown in refreshment growth." Speaking of food he added that he believed it "would continue to struggle with challenging markets".

Going forward, Huet was careful to manage expectations about the likelihood of an improvement of the division in the final quarter of the year adding that the market conditions - including price deflation in "key markets" and consumer spending "below historic levels" in Europe - would likely remain turbulent until the end of the year.

"The global slowdown is more prolonged and pronounced than expected," he said. "Despite tough conditions, our priority is to grow and grow profitably," he added.

Speaking of the "premium proposition," Huet said it was an area Unilever would continue to focus on as "it attracts customers"; somewhat of a surprise as economic conditions remain strained globally.

The group would also rely on its savoury offering in foods - an area which had seen growth during the quarter. He expressed confidence in the newly launched Knorr ready-to-eat soups and Baking Bags.

He seemed confident overall, that Unilever is taking the right steps to secure it for "long term growth".

And Shore Capital analyst Darren Shirley, agrees: "We continue to see the group as a medium term winner in the global FMCG arena and reiterate our long term BUY stance, though we expect the shares to be weak in the near term."