CONSUMER goods giant Unilever faces a further “squeeze” on profits in emerging markets as it is forced to hike prices to combat raw material cost rises and exchange rate pressures, analysts have warned.
Chief executive Paul Polman cautioned last month that the slowdown in emerging markets could last for two years.
His comments followed a shock announcement at the end of September which wiped £3 billion off the UK-Dutch group’s market value.
Unilever – which owns brands ranging from Colman’s mustard, PG Tips tea and Wall’s ice-cream to Dove soap, Lynx deodorant and Tresemmé shampoo – blamed the drop on the weakness of currencies in some emerging markets.
Now Espirito Santo analyst Alex Smith has warned that the FTSE 100 stock – which is due to post its full-year results on Tuesday – faces a further emerging markets “squeeze”.
“We anticipate further distress in emerging markets through the need to manage foreign exchange (FX)-related cost pressures in a more challenged consumer environment and potentially more competitive backdrop,” Smith said.
“We believe the market to be underestimating the extent of FX-related cost pressures facing Unilever this year in emerging markets and hence the pricing required to maintain or improve margins.
“As market leader in a number of large markets that have suffered the most severe FX devaluations, we expect Unilever to generally lead pricing. The question is will the competition, eager to take volume share – in some cases at little detrimental impact to the total profit and loss – follow. We worry not all will.”
Rival consumer products producer PZ Cussons – which makes Carex handwash, Imperial Leather soap and St Tropez spray tan – is also due to report on its half-year figures on Tuesday.
FX effects are also expected to take their toll on Cussons, but analysts have hailed its performance in Europe.
Celine Pannuti, an analyst at JP Morgan Cazenove, said: “Europe has progressed well, thanks to mix-led innovations boosting top line and margins, while Africa benefited from improving trading in the north of Nigeria, new launches and increased ramp-up in the palm oil refinery.
“Asia was the weak spot, due to a demand slowdown in Indonesia – albeit still growing double-digit – and margin pressure due to increased raw materials costs on the back of sharp FX depreciation in Indonesia and Australia.”
Panmure Gordon analyst Graham Jones added: “All four beauty brands have performed well – with St Tropez benefiting from the Kate Moss appointment – and Poland has seen good performances.”