City snapshot: Unilever’s sales growth slows on US and European weakness

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Unilever’s (ULVR) underlying sales growth slowed to 2.9% in the third quarter as low growth in Europe and North America dragged back stronger sales in emerging markets.

Overall underlying sales growth for the three months to 30 September was 2.9%, with 1.4% from volume and 1.5% from price. This compared to underlying sales growth of 3.4% in the first nine months of the year.

In Europe and North America growth remained “low”, while South East Asian markets continued to grow strong, growth in India softened further and China slowed a little.

Overall emerging markets underlying sales growth was 5.1% in the period, with volumes up 2.2% and price up 2.8%.

Headline turnover increased 5.8% to €13.3bn, which was boosted by a positive impact of 2.3% from currency and 0.8% from acquisitions. The headline sales growth represents an increase on the 1.5% growth in the first nine months of the year to €39.3bn.

Foods & Refreshment saw underlying sales growth of just 1.7%, with volumes down 0.2% and pricing of 1.9%.

This volume decline was driven by ice cream due to a strong comparator from particularly good weather in the prior year in Europe. Overall ice cream grew slightly, with an improved performance in the US.

Tea saw modest growth driven by our ongoing focus on premium black tea, black tea in emerging markets and fruit and herbal variants. This growth was partially offset by subdued consumer demand for black tea in developed markets.

Dressings returned to competitive growth, with Hellmann’s performing well and premium brand Sir Kensington’s grew strongly. In savoury, Knorr continues to modernise and develop offerings that cater to demand for more natural and convenient products.

Beauty & Personal Care underlying sales grew 2.8%, with 2.1% from volume and 0.7% from price as deodorants performed well, skin cleansing saw modest growth, while competitive intensity remained high in hair care.

Home Care delivered underlying sales growth of 5.4%, with 3.2% from volume and 2.1% from price. Home and hygiene saw “strong growth momentum”, with hand dishwash a key driver. Growth in fabric solutions was “somewhat muted”.

Overall sales in Europe were down 0.3% with volumes up 0.5% and price down 0.9% in a retail environment that remains “difficult”. Eastern Europe grew well across all divisions and it saw good growth in Italy, while the decline in Germany slowed.

Underlying sales grew 5.6% with a balance between volume of 3.1% and price of 2.5%, while underlying sales growth in North America was “positive”, helped by price growth.

CEO Alan Jope commented: “We have maintained momentum in the quarter, with a good balance between volume and price. Emerging markets and Home Care have been the key growth drivers. We will step-up competitive top line performance through innovation and portfolio evolution to serve the faster growing geographies and channels.

“We are committed to delivering superior long-term financial performance and balanced, compound growth of the top and bottom line through our sustainable business model. We are taking action to remain relevant to the consumer of the future, such as setting stretching goals on plastic use which we recently announced.

“For the full year, we continue to expect underlying sales growth to be in the lower half of our multi-year 3-5% range, an improvement in underlying operating margin that keeps us on track for the 2020 target and another year of strong free cash flow.”

Unilever shares are up 1.4% to 4,669.5p so far this morning.

Morning update

WH Smith (SMWH) has announced an agreement to acquire US travel retailer Marshall Retail Group for $400m as it posted its annual results this morning.

The newsagent group said MRG is a “fast growing independent travel retailer operating in high footfall airport and tourist locations in the United States”.

MRG currently operates in 170 North American locations, with 59 of these inside airports, and generates the majority of its revenue through the sale of news, gifts and convenience products.

It said it is differentiated from its competitors by its strategy of developing “highly customised retail experiences tailored to local customers and landlords”.

The Transaction will be financed through a new £200m term loan facility provided by the group’s existing relationship banks, alongside a £155m fully underwritten equity placing. In addition, reflecting the increased scale of the group, the existing revolving credit facility will be expanded to £200m (from the current £140m).

Meanwhile, WH Smith’s total group revenues for the year to 31 August was up 11% to £1.4bn with group like-for-like revenues up 1% compared to last year.

Group profit from trading operations increased 9% on the prior year to £177m, with headline group profit before tax increasing by £10m to £155m. Including non-underlying items relating to the acquisition of InMotion and the completed review in High Street announced in October 2018, group profit before tax was flat at £135m (compared to £134m last year).

Travel, which generates two thirds of annual group profit, delivered a “strong” performance. Trading profit increased by 14% to £117m of which £20m relates to the group’s growing international business, including InMotion.

Total travel revenues were up 22% compared to last year and up 3% on a LFL basis driven by initiatives, ongoing investment and growth in passenger numbers.

Its international travel business, including InMotion, is “growing fast”. During the year, it has won 45 units across Australia, Europe, the Middle East, South East Asia and North America and at year-end had 433 units open internationally.

Its lower growth High Street business delivered a “good performance” with trading profit of £60m and second half profit up £2m on last year. Total revenue was down 2% with LFL revenue also down 2% compared to the prior year. However, it posted a “good” gross margin performance and costs were tightly controlled with cost savings of £9m were delivered in the year in line with plan.

CEO Stephen Clarke commented: “We are delighted to announce that we have signed an agreement to acquire Marshall Retail Group, a leading travel retailer in the US. This builds further on our acquisition of InMotion last year and significantly strengthens our growth prospects in the US, the world’s largest travel retail market.

“While there is uncertainty in the broader economic and political environment, we are pleased with the start to the new financial year in both businesses. Looking ahead, the group will continue to focus on profitable growth, cash generation and delivering value for shareholders.

“Finally, as this is my last set of results before leaving at the end of this month, I would like to express my sincere gratitude to all the great people across our business for their hard work and commitment which has made WH Smith such a success over recent years. WH Smith is a great business in very good shape and I have every confidence in Carl Cowling and the team to continue to deliver the strategy that has served us so well.”

The world’s largest food group Nestlé (NESN) has posted organic growth of 3.7% in the first nine months of 2019.

Real internal organic growth of 3% “remained at the high end of the food and beverage industry” as pricing contributed a modest 0.7% in the third quarter mainly related to decreasing coffee prices. Organic growth was 3.5% excluding Nestlé businesses under review.

All product categories saw positive growth, led by Purina PetCare and coffee. The newly launched Starbucks products saw strong demand with further expansion into new countries. Nestlé Health Science showed good progress with high single-digit growth in the third quarter.

However, growth in water remained subdued, reflecting high pricing comparables and a disappointing summer season in Europe.

Nespresso reported mid single-digit organic growth, with strong RIG and positive pricing.

Net acquisitions increased sales by 0.7%. The acquisitions of the Starbucks license and Atrium Innovations more than offset divestments, mainly Gerber Life Insurance. Foreign exchange had a negative impact of 1.5%.

Total reported sales increased by 2.9% to CHF 68.4 billion.

Year-on-year growth acceleration was supported by the United States and Brazil. EMENA contributed to the improved momentum with strong mid single-digit organic growth in the third quarter. Asia saw solid growth despite softness in some categories in China.

Organic growth was 2.7% in developed markets, supported by strong organic growth, while growth in emerging markets was 5.0%.

Nestlé also confirmed full-year guidance for 2019 confirmed. It expects organic sales growth around 3.5% and the full-year underlying trading operating profit margin at or above 17.5%.

Meanwhile, Nestlé’s announced it will distribute up to CHF20bn back to shareholders over the period from 2020 to 2022 primarily in the form of a share buyback program commencing in January 2020.

It may also consider distributing part of the total amount as one or more special dividends over the period.

Nestlé also announced its seperately reported Nestlé Waters arm will be integrated into the rest of its business to report in the group’s three geographical zones from 1 January 2020.

It said the move will help “utilize Nestlé’s strong local expertise, better respond to rapidly changing consumer preferences, accelerate profitable growth and create synergies”.

Maurizio Patarnello, head of Nestlé Waters, will leave the Nestlé executive board on December 31, 2019. He will continue to advise Nestlé Waters in order to ensure a smooth transition to the new organizational structure. Meanwhile, Nestlé has appointed Sanjay Bahadur, currently head of acquisitions and business development, to the exec board. He will head the newly created group strategy and business development function, which will support Nestlé in identifying internal and external strategic growth opportunities.

Nestlé CEO Mark Schneider commented: “We are pleased with our nine-month results and have made further progress towards our 2020 financial goals. We continue to see good momentum in our largest market, the United States and very strong growth for Purina PetCare globally.

“Nestlé’s growth was supported by investment behind our brands, rapid innovation and disciplined execution. During the third quarter, the roll-out of Starbucks products continued, now reaching 34 countries. Our portfolio transformation is fully on track, as shown by the timely completion of the Nestlé Skin Health disposal.

“With prudent investments and a disciplined approach to acquisitions our value creation model is generating profitable growth and attractive cash returns for our shareholders.”

French spirits group Pernod Ricard (RI) has posted “moderate” first quarter organic growth of 1.3% in line with expectations, following a strong first quarter performance in 2018.

Sales for the first quarter of were up 4% of a reported basis to €2.5bn, helped by a favourable FX impact mainly from US Dollar.

The group has made a “good” start to the year in the US, with sales up 6% thanks in particular to innovation and enhanced by advance shipments

China was up 6% and India 3% in the period despite tough annual comparisons, while Europe was up 3% thanks to strong sales in Eastern Europe and return to growth in Western Europe.

Global Travel Retail slumped 6% in the quarter, following very strong Q1 FY19.

Strategic International Brands were up 3%, with growth moderated due to high comparison basis on Martell and Scotch but acceleration of Jameson, Beefeater, Malibu and Havana Club.

Specialty Brands grew 15% driven by Lillet, Monkey 47, Del Maguey and Altos

Its Strategic Wines division fell back 2% amid a continued implementation of value strategy on Jacob’s Creek.

Alexandre Ricard, Chairman and CEO, stated: “Q1 growth was moderate, as expected. In an environment that remains particularly uncertain, we confirm our FY20 guidance of organic growth in Profit from Recurring Operations of between 5% and 7%.”

On the markets this morning, the FTSE 100 has opened the day up 0.1% to 7,174.9pts.

WH Smith has jumped 4.6% to 2,183p on this morning’s results and acquisition. Nestlé is down 1.2% to CHF104.84 and Pernod Ricard is down 1.2% to €162.95.

In the UK, early risers include Domino’s Pizza Group (DOM), up 5.8% to 281.1p, McBride (MCB), up 1.8% to 67.4p and PZ Cussons (PZC), up 1.5% to 206p.

Fallers so far today include Hilton Food Group (HFG), down 2.2% to 995.8p, Marks & Spencer (MKS), down 1.7% to 196.3p and Nichols (NICL), down 1% to 1,555p

Yesterday in the City

As the political drama around the ongoing Brexit negotiations continued to play out yesterday, the FTSE 100 fell back 0.6% to close at 7,168pts.

Major fallers included Pets at Home (PETS), which dropped 3.1% to 222p, Applegreen (APGN), down 2.7% to 507p and Coca-Cola HBC (CCH), down 2.5% to 2,451p.

WH Smith (SMWH) fell back 2% head of its annual results this morning to 2,088p.

Irish firms Glanbia (GLB) and Kerry Group (KYGA) fell back 2.4% to €11.37 and €106.20 respectively.

Other fallers included PZ Cussons (PZC), down 1.7% to 203p, B&M European Value Retail (BME), down 1.6% to 382.2p and Morrisons (MRW), down 1.1% to 202.3p.

Marston’s (MARS) continued its recovery from its profits warning earlier this week, with shares bouncing back a further 3.7% to 117.2p.

Other risers included Domino’s Pizza Group (DOM), up 3.3% to 265.8p, Stock Spirits (STCK), up 2.6% to 214.5p, Total Produce (TOT), up 2.1% to 122.5p, McBride (MCB), up 1.9% to 66.25p and C&C Group (CCR), up 1.5% to 361.5p.