Unilever has said it expects earnings per share to remain flat for Q3. Despite the flat earnings growth, Unilever’s trading announcement was broadly positive. Sales before acquisitions and disposals will grow at 4%, compared with 4.5% in Q3. While the recent events in the US and the risk of recession will make life tougher for all consumer-focused businesses, Unilever’s Path to Growth strategy leaves it better placed than most.
Unilever has warned of a potential sales slowdown in some of its businesses in the US, following the recent terrorist attacks. However, it expects overall Q3 sales to rise by 4% excluding acquisitions and disposals, with 4.5% growth in its leading brands. This compares to a 4.5% rise in overall sales in Q2. Including acquisitions and disposals, sales will grow by 13%.
Overall, Unilever expects earnings per share to be flat for the quarter, dragged down by E580 million in exceptional costs from integrating the Bestfoods business and from implementing the Path to Growth restructuring strategy. Unilever’s shares fell 4% in London on the news.
The Anglo-Dutch company is better placed for a downturn than firms in many other markets. As the company says, its business “depends on people’s continuing need to eat, clean and groom themselves.” But some of its US businesses may be hit. In particular, Unilever believes prestige fragrances and foodservice, which together account for 4% of sales, will see reduced
Nonetheless, it appears that the Path to Growth strategy of focusing on core brands is working. Margins are expected to rise by around 1% for the quarter, as slow-growth brands are sold and integrating the Bestfoods portfolio cuts costs.
The near future will be a tough time for nearly all consumer businesses. Some influential commentators claim the US economy will move onto a ‘war footing’. Even if this proves to be an exaggeration, it looks like consumer spending will continue its slow growth. Yet the effects of the restructuring, combined with Unilever’s global focus rather than US dependence, should ensure the path to growth remains comparatively clear of obstacles.(c) 2001 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.