Poor emerging market growth sees Unilever drop

Despite reporting adjusted first-quarter underlying sales growth of 3.6%, Unilever fell in trading on Thursday after reporting a 6.3% fall in unaudited turnover year-over-year and further stalling of growth in emerging markets.

Market growth in developed economies remained weak, falling by 0.3%, and although emerging market growth continued to slow, it saw a 6.6% increase. Unilever's sales growth figures exclude the impact of foreign exchange, acquisitions and disposals on its turnover.

Unadjusted turnover dropped from €12.2 billion (£10 billion) in the first quarter of 2013 to €11.4 billion with the main hit being the Americas with a 9.5% fall to €3.6 billion.

Turnover in Africa, the Middle East and Turkey (AMET), Asia and Russia dropped by 7.7% to €4.6 billion, but signs of improvement in southern Europe buoyed the region's turnover by 0.3% to €3.1 billion.

Chief executive Paul Polman said: "We delivered good growth in the first quarter despite slowing markets and a tough competitive environment, further evidence that Unilever is now delivering consistently ahead of our markets.

"We continue to deliver strong, margin-accretive innovations whilst embedding operational discipline across our markets. At the same time we are increasing our distribution reach and enhancing the capabilities of our people to ensure that we have a strong foundation from which to deliver sustained growth.

"Emerging markets are currently passing through a period of slower demand and economic volatility but our strategy remains unchanged. We continue to invest in our brands so that they are well-placed to benefit from the significant longer term growth opportunity that will come from growing populations and higher disposable income," he added.

Underlying volume growth rose by 1.9% in the quarter and volume rose by 1.9%. However, due to the introduction of advertising, restructuring and saving schemes, core operating margin is expected to be down in the first half of the year, but is expected to recover in the second. The company announced it will increase its quarterly dividend by 6% to €0.285.

With a market capitalisation of £33.8 billion, Unilever was trading at 2,954p at 12:00. Kepler Cheuvreux reports the stock is trading on a 2014 price/earnings ratio of 19.6 times and an EV/EBITDA multiple of 12.5 times.

Analyst view

Analyst at Kepler Cheuvreux Richard Withagen rates Unilever 'buy' with a target price of €33 and highlights first-half margin weakness, overall uncertainty about 2014 margin delivery and the 6% dividend increase from the release.

"Unilever's underlying sales growth amounted to 3.6% in the first quarter versus consensus of 3.3%. Headline sales growth of -6.3% was below market estimates as currency movements impacted sales by -8.9% (consensus -8.3%). Emerging market growth slowed down further to 6.6%, while growth in developed markets was -0.3%."