A €6bn gift to investors and better than expected organic growth were not enough to butter up Unilever investors as concerns mount over pricing pressures in major markets.
Unilever posted a second consecutive quarter of strong volume growth on Thursday. Underlying first quarter sales growth was 3.7%, driven by volumes up 3.6%, but pricing was up by a far weaker than expected 0.1%. Emerging markets saw particularly strong underlying sales growth of 5.1% with volume up 4.3% and prices up 0.8%. However, the company reported a 1% price drop in the Americas and a fall of 0.7% in Europe amid pricing weakness in the UK, Brazil, Indonesia and India. Additionally, headline group sales fell 5.2% to €12.6bn, largely due to a huge currency impact of 9.8% given the relative strength of the euro.
Unilever re-stated its expectation of organic sales growth of 3%-5%, but the shares eased back on Thursday. Even the announcement of a €6bn buy-back couldn’t stop the shares falling back 2.4% to 3,851.5p by Thursday lunchtime. They are now down by 6.6% so far in 2018.
Analysts at Jefferies said the strong volume growth “should go a long way to dispelling post-Q3 worries on that score”, but warned: “Chronically weak pricing will play to the market’s fears of weak pricing power, fuelled by channel shift, in the face of rising commodities.” UBS added: “The notable deceleration in pricing leaves little room for upside to consensus margin forecast in 2018.”
It was a similar story for Swiss food giant Nestlé, which announced its own first quarter results also on Thursday. Organic growth of 2.8% beat consensus forecasts, but this was driven by a 2.6% growth in volumes with pricing accounting for just 0.2% - the lowest pricing growth for almost 10 years, according to Société Générale. Nestlé shares eased back 0.1% to CHF75.14.
SG commented: “We still expect Nestlé to struggle to deliver its target of mid single-digit growth in 2020 without more aggressive portfolio management. CEO Schneider is a clear force for good but we continue to think it will take longer to turn this supertanker than the market expects.”
Finally, Associated British Foods’ first half profits were savaged by a dive in the performance of its sugar arm as AB Sugar’s sales and profits as sugar prices were hit by the abolition of EU quotas. A 27% drop in its sugar businesses’ operating profits meant ABF’s overall pre-tax profits fell 30% to £603m on group revenue up 2% to £7.4bn in the 24 weeks to 3 March.
However, the shares jumped 4.1% to 2,690p on Tuesday as the damage wrought by its sugar business was not as bad as the City had feared and the market was buoyed by the guidance that profits and sales of its Primark retail chain will expand in the second half of the year. Shore Capital concluded: “We view ABF as a high-class operator, supported by a very strong central balance sheet, excellent cash generation and high returns.”