Unilever warns of even higher inflation next year
- Underlying Q3 sales growth of 2.5% vs. forecast up 2.2%
- Keeps operating margin forecast for the full year roughly stable
- Decrease in volumes in the third quarter mainly due to bottlenecks in Southeast Asia
- Unilever shares up 3.3% against a decline of 0.3% for the FTSE
October 21 (Reuters) – Unilever (ULVR.L) has warned that inflation is likely to accelerate next year, keeping the pressure on consumer goods companies as they raise prices in an attempt to offset the soaring energy and other costs.
Soap maker Dove and soup maker Knorr beat third-quarter sales growth guidance on Thursday and maintained its full-year profit margin guidance, defying fears of a drop by some analysts.
However, CFO Graeme Pitkethly has seen little of easing inflationary pressures, a potential blow to central bankers who are hoping the current price spike will be transient.
“We expect inflation could be higher next year than this year,” he said on a media call, adding that it is expected to peak in the first half of 2022.
Ice cream maker Ben & Jerry’s said underlying sales rose 2.5% in the three months ended September 30, above the 2.2% forecast by analysts at a company supplied by consensus.
Growth was supported by demand in the United States, India, China and Turkey, as a 4.1% price increase more than offset a 1.5% drop in volumes.
Sales of deodorants, skin cleansers and take-out ice creams increased as improved vaccination rates in developed markets encouraged more people to venture out.
More than two-thirds of the drop in volumes is due to Southeast Asia, where an increase in cases of the Delta variant of the coronavirus has forced governments to put in place strict containment measures that have curbed consumption.
As of 9:15 am GMT, Unilever stock was up 3.3% in an FTSE 100 index (.FTSE) down 0.3%. Read more
“Compared to low expectations, this looks to us like a ‘fairly good’ quarter, with decisive price progress that is positive for us in the current climate. But the underlying challenge remains that of accelerating growth. volumes, ”said Martin Deboo, analyst at Jefferies.
Consumer goods companies face soaring prices for raw materials such as energy, edible oils and packaging, as well as higher transportation costs as economies recover from the pandemic.
Results from Procter & Gamble Co (PG.N) and Danone SA (DANO.PA) as well as phone maker Ericsson (ERICb.ST) this week showed higher costs and supply chain disruption , signaling increased pressure on margins for global companies and pricing for buyers. Read more
Inflation in the consumer goods industry dates back to adolescence, although Unilever said it has less of an impact because of its bargaining power and hedging.
Unilever’s price increases in the third quarter – up from 1.6% in the previous quarter – came in markets such as Mexico, the Middle East and Russia. Volumes were barely affected by these increases, CEO Alan Jope said on a conference call with investors.
Helped by rising prices, Unilever said it was sticking to its latest operating margin forecast for the full year. In July, he lowered the forecast to “roughly stable” from “slightly higher”.
Palm and soybean oil and crude oil derivatives such as resin were among the main areas of cost pressure, while ocean freight costs were 10 to 15 times higher than at the end of 2019 , he added.
Amid logistical challenges such as port congestion, Unilever maintains buffer stocks in certain categories to maintain on-shelf availability at retailers which exceeded 96% for major brands in its top 10 markets, up 70 basis points compared to last year and “above average” compared to its peers, specifies the group. Volumes fell by a high single-digit percentage in Southeast Asia, despite “negligible” price increases in the region, which contribute about 14% of Unilever’s revenue.
The company has also seen consumers switch to cheaper brands, which has increased competition in markets such as Indonesia.
“We’re not as competitive as we would like to be in Southeast Asia,” Pitkethly said.
($ 1 = 0.8590 euros)
Report by Siddharth Cavale in Bengaluru Editing by Mark Potter
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