Unilever feels emerging markets exchange rates headwinds

Unilever released its first quarter trading statement today (24^th April), in a move that highlights some of the challenges currently faced by the company.

The consumer goods company took revenue of €11.4bn in the quarter, around a 6% decline from the same period last year. However, underlying revenue (excludes impact of exchange rates and M&A) grew 3.6%.

The company’s shares are down 2% (at time of writing) – despite its underlying sales growth being roughly in line with expectations. Of course it doesn’t help that the company’s expects weaker margins for the first-half, due to spending on activities including advertising.

Still, it’s worth noting that Unilever isn’t alone. Others, including rival Procter & Gamble, have also felt the impact of weaker emerging market currencies.

Unilever’s other issues

In addition to adverse currency movements, the current slowdown in emerging markets also poses a challenge for the company.

Sure, underlying sales in emerging markets grew 6.6% in the quarter (coming in at €6.4bn) but that’s a deterioration from last year’s 10.4% – which itself had slowed from the prior year.

Meanwhile, it’s no secret that the company has struggled to revive growth in its Foods division –and that trend continued this quarter.

While its other divisions grew in the quarter (on an underlying sales basis), the company’s Foods business – which encompasses spreads, soups, sauces and dressings, among others – posted a 1.7% drop in sales for the quarter.

According to Unilever, this was partly down to the late timing of Easter. Nonetheless, growth at that division has remained elusive for some time now.

Admittedly, Unilever has taken steps towards restructuring its food business – including selling underperforming brands. For example, the recent sale of Wish-Bone salad dressing and Peperami.

Similar moves could be on the horizon, with Unilever having announced that it’s undertaking a strategic review of its Slim Fast brand, as well as its North America pasta sauces business.

But Unilever’s long-term growth story remains sound

Indeed, let’s not forget just what Unilever’s product portfolio contains.

The company’s Personal Care (its largest business) and Home Care divisions, for instance, boast strong brands such as Dove, Vaseline, Surf detergent and Comfort fabric conditioner.

Not to mention that it has enough financial flexibility to pursue further growth in those businesses via acquisitions.

Management at the company may well need to take bolder strides in a bid to fix the Foods business, and challenges in emerging markets look set to continue weighing on the company near term – but its fundamentals remain intact.

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