Price War Eats Into Unilever Profit -- 2nd Update

By Saabira Chaudhuri 

LONDON -- A fierce price war between consumer goods giants hit Unilever PLC hard in the first half.

The Anglo-Dutch maker of Dove soap and Magnum ice creams reported anemic sales growth and lower profit for the six months to June 30 as it discounted some products and struggled to raise prices on others in North America and Europe.

Unilever, like other consumer goods companies, has long relied on selling new or improved versions of products at higher prices to boost growth. But that's being challenged by weak inflation, Amazon.com Inc.'s rising prowess in selling household staples, and declining brand loyalty as consumers use the internet to shop around. Growing popularity of discount retailers, from dollar stores to Germany's Aldi, is also pushing down prices.

Unilever's Chief Financial Officer Graeme Pitkethly said the trend was particularly notable in condiments where a battle for market share between Unilever and Kraft Heinz Co. has led to the lowest average retail price on mayo in North America in seven years. "We're going toe to toe in a battle to provide consumer value," he said. Unilever owns Hellmann's mayonnaise.

Unilever also has a fight on its hands in deodorants where it says Procter & Gamble Co. followed its lead in launching a dry spray. The innovation, aimed at consumers who complained about the wet feeling that accompanied traditional sprays, had lifted Unilever's sales in recent quarters.

For the first half, Unilever reported underlying sales growth of 2.5%, driven almost entirely by volume, rather than price. The company had in June warned first-half growth would be below its full-year target of 3% to 5% because of a trucker's strike in Brazil, which hurt sales growth by 0.6 percentage point.

"We think Unilever's sales performance is disappointing, particularly in light of hot weather in the Northern Hemisphere which ought to have boosted ice cream sales," said RBC analyst James Edwardes Jones.

Unilever's underlying price growth for the period was just 0.2%. Prices dropped in its beauty and personal-care division, but climbed slightly in food and refreshments, and home care.

The North American market was particularly tough, with prices falling by 0.3%. Volumes rose just 1% and declined in the second quarter, which Mr. Pitkethly attributed to fewer new product launches compared with the same period a year earlier.

The Anglo-Dutch company, whose brands also include Dove soap and Magnum ice cream, reported net profit of EUR3.04 billion ($3.54 billion) for the six months to June 30, down from EUR3.11 billion in the same period last year. Revenue declined to EUR26.4 billion from EUR27.7 billion.

Unilever, which currently operates as two separately listed companies -- Unilever PLC and Unilever NV -- is in the process of working to unify its dual British-Dutch legal structure. Thursday, Mr. Pitkethly said a shareholder vote was slated for October and, despite opposition from "a small number of investors" he is "very confident" that Unilever will be able to move entirely to Rotterdam.

Write to Saabira Chaudhuri at [e-mail]

(END) Dow Jones Newswires

July 19, 2018 05:34 ET (09:34 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.