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Now It's Unilever's Turn to Struggle

October 15, 2013

Emerging market weakness pulls down Q3 sales.

As Procter & Gamble finds its footing, its chief rival is starting to struggle. Unilever Chief Executive Officer Paul Polman will next week report one of the worst quarters of sales growth in his five-year tenure amid a slowdown in emerging markets. At the same time,  an expected recovery in the US, the company's largest market, has failed to materialize. Unilever, the world’s second-largest consumer goods maker, announced on Sept. 30 that it will post underlying sales growth of 3-3.5% for the third quarter, down from 5.9% in the same period last year and its worst result since the fourth quarter of 2009. While weak currencies in India, Brazil and Indonesia were to blame, sales in developed regions like Europe and the US also remain “flat to down,” it said.

Conditions in the US, which accounts for about 18% of Unilever’s $70 billion in revenue, are particularly worrisome as analysts such as Panmure Gordon’s Graham Jones anticipated a rebound in the second half. There, Unilever has been hurt by encroachment from P&G, stalling sales at retailers like Stores Inc., and a sluggish, uneven economic recovery that’s left many Americans unwilling to spend.

The slowdown at the company “says as much about developed markets as it does about emerging markets,” Jones said in an interview. “They need to get their act together there.”

Unilever’s performance across its entire US business deteriorated in the third quarter, according to Nielsen data cited in an Oct. 9 note from Exane BNP Paribas. Food sales dropped 4.9%, hurt by a 9% decline in margarines and spreads, while sales of personal care products like Axe body sprays were unchanged. Categories that had double-digit growth a year ago, like shampoo, turned negative. While Unilever’s US market share has declined for two straight quarters, P&G gained share in the third quarter, helped by increased sales of cosmetics, soaps and deodorants, according to Nielsen.

“P&G has undoubtedly regained some momentum,” Jeff Stent, an analyst at Exane, said in an Oct. 4 report. P&G’s market share had declined in the previous three quarters.

Unilever’s results in mature markets trail those of its European peers, according to Oriel Securities analyst Chris Wickham. In the first half of 2013, Reckitt Benckiser the maker of Lysol disenfectants, posted a 3% sales gain in Europe and North America. Nestlé SA,   the world’s biggest food company, said sales in developed markets grew 1%. Nestlé and Danone are among European consumer-products companies that are due to report third-quarter sales this week.

Unilever and all FMCG companies are trying to cope with big retailers trimming excess inventory from their stores. Walmart, the world’s largest retailer, said US sales grew at less than half the pace of its inventory in the second quarter, prompting the Bentonville, AK-based company to cut some orders in the latter half of the year, according to Bloomberg, which noted that Walmart is Unilever's biggest customer, accounting for 3.5% of sales.

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