Shares in consumer goods colossus Unilever (ULVR) cheapened 5.3% to £43.85 on Tuesday after the PG Tips, Marmite and Magnum ice cream maker cut its 2019 sales growth forecast.
Regarded as one of the more dependable names on the stock market, the disappointment was compounded as Unilever also said growth for 2020 would be ‘second-half weighted’, wording that often proves a precursor for further earnings alerts.
MORE MEAGRE GROWTH
In a short update, Unilever warned it now expects underlying sales growth for 2019 to be ‘slightly below’ previous guidance of revenue coming in at the ‘lower half of its 3-5% multi-year range’ amid fourth quarter challenges in some of its markets.
The Ben & Jerry’s ice cream-to-Dove soap maker bemoaned the economic slowdown in South Asia, notably in key market India, where irregular monsoons and a sluggish job market have impacted consumer spending.
Unilever also blamed continued ‘difficult’ conditions in West Africa and challenges in developed markets. North America, its biggest market, is exhibiting ‘early signs of improving performance’ as Unilever takes ice cream market share, but ‘a full recovery there will take time’.
Cushioning the share price blow somewhat was Unilever’s insistence that earnings, margin and cash ‘are not expected to be impacted’ by the sales setback.
SECOND-HALF WEIGHTING
Chief executive Alan Jope, who took over from Paul Polman at the start of 2019, also cautioned: ‘Looking ahead to 2020, growth will be second-half weighted.’
While he expects the first half of 2020 to improve versus this quarter, Unilever expects 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.’
Jope insisted however that ‘growth remains our top priority’ and Unilever is ‘confident we have the right strategy and investment in place to step up our performance’.
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 revealed that not only is sales growth short of expectations for 2019 as a whole but it will also be behind in the first half of 2020.
‘It is easy to see the expectation for next year to have a second-half weighting translate into a further warning if sales do not recover.’
READ MORE ABOUT UNILEVER HERE
The Anglo-Dutch consumer goods giant is a compounding star prized for its enviable brands portfolio and pricing power, strong cash flows and dividends and emerging markets presence.
Unilever owns around 400 brands spanning beauty and personal care, home care and foods and refreshment products with sales in more than 190 countries. Over half of its footprint is in developing and emerging markets.
Nevertheless, growth in developed economies has proved sluggish as growing numbers of consumers turn away from flagship brands and move towards either niche brands or own-label products whilst reducing spending.
As Mould explained: ‘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, 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.’
