Unilever Q1 net profit up 33 percent to $1.28 billion as margins improve

Thursday, April 29, 2010

Unilever reports 33 percent rise in Q1 profit

AMSTERDAM — Unilever NV, the maker of Lipton tea, Dove soap and Ben & Jerry’s ice cream, reported a 33 percent rise in first quarter net profit on Thursday, as the company boosted sales and took market share from rivals by slashing prices.

Unilever, which trails Procter & Gamble Co. and Nestle SA as the biggest consumer products maker, said net profit was euro973 million ($1.28 billion) compared with euro731 million in the same period a year earlier. Sales rose 6.7 percent to euro10.1 billion.

“In cutting prices, Unilever continues to up the pressure on rivals” said analyst Keith Bowman of Hargreaves Lansdown in a note on earnings.

He described the company’s strategy as “intense advertising combined with successful product innovation and stringent cost control.” He said it had resulted in a string of good results that is restoring the company’s reputation with investors after a decade of underperformance.

Shares rose 3.4 percent to euro23.285 in Amsterdam.

Chief Executive Paul Polman said margins were helped by lower commodity costs and lower overhead. The company increased advertising spending, even as the cost of placing ads fell.

Polman said Unilever plans to continue taking advantage of customer preferences for a good deal over a prestigious brand.

But he said cutting costs to increase margin will be increasingly difficult.

“Commodity costs will increase in the second half of 2010, economies remain sluggish and competitive intensity will remain high,” Polman said.

“It is more important than ever to stay focused on the consumer.”

Analyst Richard Withagen of SNS Securities said the results “came in ahead of expectations.”

“The update makes it clear that competitiveness remains fierce in the global consumer goods area, but Unilever has a much stronger profile than a couple of years ago,” he said in a note on the earnings. He repeated an Accumulate rating on shares.

By product type, Unilever’s ice creams and personal care products showed the strongest growth, better than 7 percent each. The company cited new product launched under the Magnum, Cornetto and Breyer’s brands, and new Dove and Vaseline products.

By geography, sales volumes grew 12 percent in Asia & Africa, the company’s largest region, followed by 6.3 percent growth in the Americas and 4.0 percent in Europe.

The company cut prices in all regions, and a 3.7 percent decline in Europe meant the company’s net sales there were almost flat.

Operating margins improved by 0.6 percent overall, with gains in all areas but especially strong in Europe, where Unilever has been restructuring.

Analyst Bowman said the company’s moves in recent years to reduce the number of brands it offers was helping keep costs under control. Strong exposure to emerging markets and low commodity costs were “adding a tailwind to group progress.”

“On the downside, the economic outlook for Europe — a major marketplace — remains up in the air, while perceived recovery prospects have seen some bounce back in food commodity prices,” he said.

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