Unilever sees fall in shipments after raising prices

Unilever, the maker of Hellmann's mayonnaise, reported an unexpected decline in shipments as it raised prices by the most in four years, setting the stage for what is expected to be a difficult reporting season for consumer-goods makers.

The volume of goods sold in the third quarter declined 0.4 per cent, London- and Rotterdam-based Unilever said on Thursday, the second-weakest quarterly performance since 2008. Underlying revenue growth slowed to 3.2 per cent.

The shares fell as much as 3.7 per cent in London, the biggest intraday drop since January 20th, as the company said it does not expect market conditions to improve in the fourth quarter.

Unilever, which is reportedly embroiled in a dispute with Tesco in the UK over Brexit-related price increases, aims to resolve the issue quickly, chief financial officer Graeme Pitkethly said on Thursday.

The overall volume decline raises concerns about ebbing demand across the consumer-goods industry as the third-quarter reporting season gets under way. Nestle, the world's biggest food-maker, told analysts last month that its sales growth may be lower than anticipated.

Spending power

“Spending power is strained,” Simon Hales, an analyst at Barclays, said by phone. “You’re undoubtedly going to see some volume pressures in the industry.”

Unilever’s volume growth had slowed in the first two quarters of the year before this drop, in contrast with the company’s forecast for improvement over the course of the year.The 3.6 per cent increase in pricing was more than analysts had expected.

Mr Pitkethly said the price growth was “reasonable” and the company boosted charges for goods in Latin America and Asia to cope with higher raw material costs due to currency fluctuations.

“Unilever called out poor end-market growth across many markets,” wrote Robert Waldschmidt, an analyst at Liberum Capital.

The Brazilian market is shrinking, Argentina has severe inflation and Chinese demand is soft, he said.

Marmite and Persil

The UK’s

Guardian

reported on Wednesday that Unilever sought to raise the price of products such as Marmite spreads and Persil detergent by about 10 per cent because of sterling’s drop. The UK accounts for about 5 per cent of revenue, according to Mr Pitkethly.

“This is such a large event that it may simply be that the two gorillas on both sides have decided to go through the motions of the negotiation on behalf of the industry, so the rest of the industry can then fall into line,” Bruno Monteyne, an analyst at Sanford C Bernstein, said of the reported dispute between Unilever and Tesco.

Food companies such as KitKat maker Nestle and Swiss dairy concern Emmi have both said they will look to raise prices in the UK to respond to the plunge in sterling following the UK's Brexit referendum, which has raised their sourcing costs. – Bloomberg