Marmitegate may have grabbed the headlines in the UK last year, but Unilever has bigger problems. The brand at the centre of the furore with Tesco did not even get a mention in the consumer goods giant’s full-year results on Thursday.
Investors dumped shares in the group, despite underlying sales growth of 3.7% and a rise in profitability in 2016. News that growth slowed considerably in the fourth quarter - with an organic sales rise of 2.2% as emerging markets weakened and developed markets declined 1.2% - and would not likely return until the second half of 2017 sent the stock tumbling 4.7% to 3,191.5p at the time of writing on Thursday afternoon.
CEO Paul Polman indicated a 3%-5% range for organic sales growth in 2017, with a later Easter and tough comparatives leaving the first quarter looking weak. Margin expansion is also expected to be at the lower end of the range.
The majority (2.8%) of the 3.7% growth recorded in 2016 came from price hikes, mainly from inflation-hit Latin America, but this hurt volumes across Unilever’s markets. Underlying sales in developed markets fell back 0.2%, with European sales down 0.7% in the full year and 2.3% in the fourth quarter. Food sales gathered momentum as like-for-like growth rose 1.9%.
“Unilever continues to expect tougher market conditions and high volatility in 2017,” said Liberum consumer goods analyst Robert Waldschmidt. “Higher emerging market exposure (58% of sales) and a deflationary Europe cap Unilever’s growth in the foreseeable future.”
Diageo painted a brighter picture in its first-half results. The Guinness and Johnnie Walker owner reported a 14.5% jump in net sales to £6.4bn in the six months to 31 December, with operating profit up 28% to £2bn, driven by favourable exchange rates and organic growth. Shares surged more than 5% in early trading and are currently up 4.5% at 2,236p. “Much of the generally bullish market sentiment on Diageo is predicated on a rebound in the US business,” said Alicia Forry of Liberum.
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