Unilever says FY sales growth will miss expectations

Consumer goods giant Unilever cautioned on Tuesday that full-year sales growth would miss expectations amid challenges in some of its markets.

The company said underlying sales growth would be "slightly below" guidance of the lower half of its 3-5% multi-year range. This was attributed to challenges in some markets, including the economic slowdown in South Asia, which is one of its largest markets, and trading conditions in West Africa remaining "difficult".

Unilever said the trading environment in developed markets remains "challenging" and while there are early signs of improving performance in North America, a full recovery there will take time.

Earnings, margin and cash were not expected to be hit.

Chief executive officer Alan Jope said: "Due to challenges in certain markets, we expect a slight miss to our full year underlying sales growth delivery.

"Looking ahead to 2020, growth will be second-half weighted. While we expect improvement in H1 2020 versus this quarter, we expect that first half growth will be below 3%. Our full year underlying sales growth is expected to be in the lower half of the multi-year range."

At 0900 GMT, the shares were down 5.3% at 4,383.50p.

London Capital Group analyst Jasper Lawler said: "Unilever is a globally-diversified firm so sales will be hurt when global growth conditions weaken. But weaker markets are not the only issue. If Unilever were performing as in days gone by, investors would be attracted to the defensiveness of it is consumer products when global conditions are more iffy.

"Instead, there is a feeling that Unilever has not convinced its consumers about its green credentials. In our view, mass-produced, over-priced branded products wrapped in plastic is not where consumer demand is headed."

Russ Mould, investment director at AJ Bell, said: "Even a bucket of Domestos couldn’t clean up the stink created by Unilever’s trading update.

"The company blames an economic slowdown in South Asia and tricky trading conditions in West Africa as well as continued challenges in developed markets including North America. The reality is the consumer goods giant has been struggling to deliver organic growth for some time.

"As recently as late November at a big investor day, CEO Alan Jope had emphasised that improving growth rates was a big priority for the group. It now appears this will be very much a long-term project as Jope looks to reshape the portfolio of brands through investment, acquisitions and disposals. Another challenge for Unilever, and other big consumer goods firms, is weakening brand power amid increasing levels of choice for consumers.

"The company does at least seem able to keep its profit ticking over thanks to tight control of costs and it is notable that earnings, margins and cash flow are not expected to be impacted by the shortfall on sales."

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, argued that the longer-term attractions of Unilever still exist.

"A huge chunk of the world’s population uses a Unilever product every single day, and margins aren’t in jeopardy following today’s announcement. While it’s a shame growth won’t be stellar for a while, this is just a bump in the road and not an outright stalling of the engine."

RBC Capital Markets said: "There’s no suggestion in the statement that Unilever is in anyway at fault: the blame is placed squarely on its markets. In this context the comment that ‘Growth remains our top priority and we are confident that we have the right strategy and investment in place to step up our performance’ is consistent, but not, in our view, convincing.

"We believe Unilever needs to increase investment in the business, even if it comes at the expense of margins."