PG Tips to Persil consumer goods giant Unilever has warned its margins are being squeezed as it struggles to pass on a 15% hike in commodity prices.
The Anglo-Dutch group said operating margins in the full year will be flat to slightly down as it limits price rises in an attempt to drive sales against a backdrop of uncertain consumer demand.
Unilever said it gained market share in the UK in the three months to September 30 despite sales of its ice creams brands, which include Ben & Jerry’s and Wall’s, being hit by poor weather in July.
Overall sales rose 7.8% to £10.4 billion in the period, driven by a strong performance in markets such as China, India and Indonesia.
But shares slumped 2%, making it the biggest faller on the FTSE 100 Index, as traders reacted to the squeeze in its margins.
Chief executive Paul Polman said: “These results are especially encouraging against the backdrop of very uncertain consumer demand, hugely volatile commodity markets, natural disasters and geo-political uncertainty in many parts of the world.”
He added that the sales performance was strong given that Unilever had decided to up its prices before many of its competitors.
Its UK performance was boosted by the success of its extended range of Domestos Germ-Kill products.
Its western European division saw sales decline 0.5% amid depressed conditions in southern Europe, having grown in the previous six months.
But sales growth picked up to 12.4% in emerging markets, despite natural disasters in Thailand and Philippines.
Recent acquisitions, including Sara Lee body care and Alberto Culver, also helped boost its performance.
However, the group’s overall volume growth declined to 1.9%, compared to 2.2% in the previous quarter.
Keith Bowman, analyst at Hargreaves Lansdown, said the downgrading of the full-year operating profit margin is disappointing.
But he added: “In all, Unilever is clearly not exempt from the headwinds buffeting the global economy.
“Central Bank printing of money has put pressure on raw material prices, while the supermarkets are attempting to deliver consumer value via the promotion of non-branded products.”
