Unilever sees big drop in profits as costs bite hard

Underlying sales growth increased 4.8 per cent to reach €10.12bn (€12.91bn), on the back of a strong performance in the South American and Asian markets and solid performances in the North American and European markets.

However, costs have hit the company hard, with increases in advertising spend combined with rising commodities costs outweighing increased prices and productivity gains.

In turn the company's net profit dipped 45 per cent to reach €812m ($1.03bn), which was underscored by a €300m provision for possible compensation payments relating to the conversion of preference shares last year.

The maker of the Dove personal care brand and the Sunsilk hair care brand reported that sales for its personal care category were once again the company's strongest performing division, with quarterly sales of $2.87bn representing a 6.8 per cent underlying sales growth.

Likewise sales in the home and personal care division also showed strong underlying sales growth of 5.2 per cent for the quarter, to reach $4.63bn.

On a regional basis there was a marked difference between sales by volume and sales by price, underlining the fact that price increases have struggled to keep up with rising costs.

In the company's mainstay European market, sales came in at €3.90bn, representing a volume growth of 3.1 per cent and a price growth of 0.3 per cent.

In North America sales for the quarter were €3.43bn, representing a rise in volume of 2.7 per cent and a rise in price of 1.3 per cent.

The Asia and Africa market proved strongest of all, with sales coming in at €2.78bn, representing a rise in volume of 5 per cent and a rise in price of 2.3 per cent.

The company said that in particular strong ice cream sales in Europe, helped by a hot summer, had added 0.4 per cent to the overall turnover during the quarter.

Analysts believe that Unilever may have weathered the worst of the storm though, as cost savings are expected to kick in during the coming months and raw material prices start to level off.

However, the company's fortunes are in distinct contrast to rival Proctor & Gamble, which this week announced sales growth in excess of 20 per cent, alongside growth in net profit that exceeded 30 per cent.

Proctor & Gamble's exceptional results came off the back of its recent merger with Gillette, which has still fuelled underlying growth in the region of 6 per cent, and helped it to take the title of world's largest consumer goods company from Unilever.

But the $57bn Gillette take-over is not likely to be repeated by Unilever, leaving the company's current position in some uncertainty.

Unilever says it is expecting to complete the sale of its European frozen foods business during the next few months, but no significant acquisition have been made of late, and there has not been any formal acknowledgement of any specific M&A plans.