UNA Unilever PLC

By Saabira Chaudhuri 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 2, 2018).

LONDON -- Unilever PLC bucked a trend roiling its American rivals by selling more products at higher prices during last year's final quarter.

Consumer-goods giants Procter & Gamble Co., Kimberly Clark Corp. and Colgate-Palmolive have reported weak sales as brick-and-mortar retailers like Walmart Inc. push for steep discounts as they compete with Amazon.com Inc. and as input costs rise. P&G, the maker of Tide detergent and Pampers diapers, last week said that average prices on its products fell in the most recent quarter for the first time since 2011.

Unilever reported 0.7% growth in prices for the fourth quarter on the back of volume growth of 3.2%. Overall, sales grew 4% on an underlying basis -- which excludes acquisitions and disposals and the effect of currency moves -- to EUR12.8 billion.

Unilever's focus on emerging markets, coupled with a portfolio that includes high-end skin-care products and fancy mustard, means the company has more of a buffer from price pressures than its rivals, Unilever finance chief Graeme Pitkethly said in an interview.

"We have less reliance than our rivals like P&G on categories under pressure like razor blades and diapers," he said. "We see the same trends but we don't see the same impact."

The company in 2014 created a prestige division and has since acquired a string of premium skin-care brands, among others, to strengthen this unit.

Mr. Pitkethly says he thinks Unilever will continue to push through higher prices in North America in 2018, but warned that as the company's e-commerce sales grow, price pressures will mount. Unilever currently makes about 5% of its North America sales online, and that segment is growing at 50%. "That brings the pressure on," Mr. Pitkethly said.

While Unilever often has achieved sales gains by raising prices, for the fourth quarter the company's volume growth impressed analysts. Investors generally perceive price-led sales growth as inferior to that driven by recruiting more customers or just selling more to existing ones.

"This is a much-improved performance from Unilever," said RBC analyst James Edwardes Jones.

For the year, Unilever reported its sales grew 1.9% to EUR53.72 billion, or up 4.9% on a constant-currency basis. Net profit for the maker of Magnum ice cream and Dove shampoo grew 17% to EUR6.05 billion.

Like rivals, Unilever has been grappling with various headwinds. Consumers in big, developed markets are increasingly opting for niche brands they see as more desirable. In emerging economies, increased competition is coming from increasingly sophisticated local players, while at the same time big markets like India and Brazil are suffering macroeconomic disruptions.

The tumult in the sector has attracted activist investors like Nelson Peltz to P&G and Daniel Loeb to Nestlé SA, and created an opening for Kraft Heinz Co. last year to approach Unilever with an unwelcome $143 billion acquisition bid. Since then, Unilever has agreed to sell its spreads arm, where sales growth has long been declining. It also has launched a share buyback, set a new operating margin target of 20% by 2020 and sought ways to simplify its dual-listed structure, which holds it back from making big acquisitions.

Unilever also has embarked on a companywide restructuring to become more responsive to local trends, including giving increased autonomy to its local managers. It made 11 acquisitions in 2017, including buying hair- and skin-care company Sundial Brands in the U.S.,and organic herbal tea brand Pukka Herbs in the U.K.

The company launched five new personal-care brands last year, including Hijab Fresh -- a shampoo aimed at Muslim women that wear head coverings -- and Love, Beauty and Planet -- an eco-friendly hair and body-care brand aimed at millennials.

On Thursday, the company's home-care arm reported underlying fourth-quarter sales growth of 6.5%, while personal-care sales grew of 4.4%. The foods business saw sales rise 1.4%, and refreshments -- which houses tea and ice cream -- rose 4%. After being challenged by rival HaloTop in the U.S. Unilever's ice cream sales returned to growth in the fourth quarter.

For the year, Unilever reported an underlying operating margin of 17.5%, up 1.1 percentage point from 2016.

Unilever gave annual guidance of underlying sales growth of 3% to 5% and an improvement in its underlying operating margin, as it takes aim at its 2020 target.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

February 02, 2018 02:47 ET (07:47 GMT)

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