As the UK suffered its biggest freeze in decades, analysts warned that Unilever’s results heralded a “chill Siberian wind” for the top global food and drink suppliers.
Despite revealing that disposals and currency changes had helped boost net profits for 2008 by 28% to €5.3bn, this week’s full-year trading update failed to reassure shareholders. Unilever shares had the largest falls on the FTSE 100 on both Wednesday and Thursday, losing 7% of their price on Thursday alone.
Recession was the key culprit, said analysts. “We’re entering the worst consumer recession in living memory,” said one. “It’s no surprise to see this start to have an effect. After fmcg companies have outperformed for such a long time, any hint of bad news will really impact price.”
Causes for concern in Unilever’s update included a fourth-quarter fall in margin of 0.7 percentage points, coupled with falling volumes. A major cause of this was US retailers cutting inventory levels.
Unilever told investors that one US retailer - widely believed to be Wal-Mart - had cut inventory from 12 days’ stock to 10, which could have as much as a 3% impact on volumes. The shift to own label in the UK and southern Europe had also made an impact.
“In developed markets, we see consumers trading down or simply buying less,” said Unilever CEO Paul Polman. “This all adds to the pressure. Our priorities for the year ahead are simple: to reinvigorate volume growth and protect cashflow and margin as we do. It can be done.”
Unilever is not the only global fmcg giant to be suffering in the economic downturn, with both Kraft and Procter & Gamble posting disappointing updates.
Kraft reduced 2009 profit forecasts, while P&G revealed that soaring commodity costs had led to a 0.7 percentage point squeeze on operating margin.
Analysts said Unilever’s results were a barometer for other major suppliers, with Danone, Diageo and Nestlé due to post updates next week, and Cadbury later in the month.
“This fourth-quarter season we’re finally seeing more first-hand evidence that things are getting tough,” said Investec analyst Martin Deboo. “As the first to report, Unilever may be the herald of a chill Siberian wind across the sector as many of the key issues are universal: America is destocking, emerging markets are slowing down, commodity markets remain volatile - and consumer demand is weak in developed markets.
“The silver lining is falling commodity prices, but these are going to take longer than we thought to feed through.”
Focus on Household p45
Despite revealing that disposals and currency changes had helped boost net profits for 2008 by 28% to €5.3bn, this week’s full-year trading update failed to reassure shareholders. Unilever shares had the largest falls on the FTSE 100 on both Wednesday and Thursday, losing 7% of their price on Thursday alone.
Recession was the key culprit, said analysts. “We’re entering the worst consumer recession in living memory,” said one. “It’s no surprise to see this start to have an effect. After fmcg companies have outperformed for such a long time, any hint of bad news will really impact price.”
Causes for concern in Unilever’s update included a fourth-quarter fall in margin of 0.7 percentage points, coupled with falling volumes. A major cause of this was US retailers cutting inventory levels.
Unilever told investors that one US retailer - widely believed to be Wal-Mart - had cut inventory from 12 days’ stock to 10, which could have as much as a 3% impact on volumes. The shift to own label in the UK and southern Europe had also made an impact.
“In developed markets, we see consumers trading down or simply buying less,” said Unilever CEO Paul Polman. “This all adds to the pressure. Our priorities for the year ahead are simple: to reinvigorate volume growth and protect cashflow and margin as we do. It can be done.”
Unilever is not the only global fmcg giant to be suffering in the economic downturn, with both Kraft and Procter & Gamble posting disappointing updates.
Kraft reduced 2009 profit forecasts, while P&G revealed that soaring commodity costs had led to a 0.7 percentage point squeeze on operating margin.
Analysts said Unilever’s results were a barometer for other major suppliers, with Danone, Diageo and Nestlé due to post updates next week, and Cadbury later in the month.
“This fourth-quarter season we’re finally seeing more first-hand evidence that things are getting tough,” said Investec analyst Martin Deboo. “As the first to report, Unilever may be the herald of a chill Siberian wind across the sector as many of the key issues are universal: America is destocking, emerging markets are slowing down, commodity markets remain volatile - and consumer demand is weak in developed markets.
“The silver lining is falling commodity prices, but these are going to take longer than we thought to feed through.”
Focus on Household p45
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