Unilever Profit Rises Despite China Sales Slump--2nd Update

By Peter Evans 

LONDON-- Unilever PLC said weakening demand in emerging markets, especially China, has showed no sign of letting up this year even as the consumer-goods group reported a rise in profit in 2014.

"There are still huge amounts of uncertainty in the world," Jean-Marc Huët, Unilever's chief financial officer, said Tuesday. "We're not going to be too bullish at this time."

Unilever, which makes Dove soap, Axe deodorant and Hellmann's mayonnaise, has relied heavily on emerging markets to drive growth in the past decade. The company makes nearly 60% of its sales in the developing world--compared with around 40% at biggest rival Procter & Gamble Co.

But now those markets are starting to falter, and Unilever is paying the price. China earlier Tuesday said its economic growth in 2014 slowed to the lowest rate in a quarter-century. India and Brazil--two of Unilever's biggest markets--have also experienced slowdowns in the past year.

The company said its underlying sales--a measure that strips out the impact of asset sales, acquisitions and currency movements--increased 5.7% in emerging markets in 2014, down from 8.7% a year earlier and 10.4% in the first quarter of 2013.

Sales in China declined 20% in the fourth quarter, the second consecutive period in which sales have plunged by that much. Unilever blamed "destocking" for its problems in China, saying it has reduced the volume of products it supplies to big retailers in China in response to changing demands from Chinese consumers, who are becoming less willing to pay more for branded goods. The company said the destocking process was now mostly complete.

Unilever said it would benefit from the recent plunge in oil prices--but not for several months.

About a quarter of the EUR20 billion ($23.2 billion) the company spends on raw materials each year is linked to the price of oil, but prices are typically locked in four or five months in advance. Mr. Huët said the collapse in oil meant Unilever could expect a "low-single-digit" percentage reduction in costs toward the middle of 2015.

Chief Executive Paul Polman told reporters Unilever would continue to assess the mix of its holdings after a year in which it sold food brands Slim-Fast and Ragú and bought soap brands Camay and Zest from P&G.

"We always will evolve our portfolio," he said.

The company has pushed back against waning sales growth in emerging markets by introducing new, higher-price products. Unilever said it increased prices in Brazil, India and Indonesia during the year, which helped boost full-year profit. Overall, profit rose 6.8% to EUR5.17 billion despite a 2.7% fall in revenue to EUR48.4 billion.

Underlying sales growth across the company was 2.9%, down from 4.3% in 2014 and below most analysts' expectations. The company said it expects a similar level of growth in 2015. Unilever's shares fell as much as 2.5% in morning trading in London before losses moderated.

"We expect weak market conditions--particularly in emerging markets and Europe--will persist in 2015, hurting Unilever's growth prospects," said Robert Waldschmidt, an analyst at Liberum.

Write to Peter Evans at [e-mail]

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