Unilever, Colgate Cut Profit Outlook, Sector Under Pressure

22 September 2004

There's bad news then there's bad news twice over, and it's a sorry tale told by two of the globe's fmcg giants --Unilever and Colgate-Palmolive.

Both companies have revised down profit forecasts for the second half of the year, causing their own shares -- and those of competitors in the sector -- to tumble. And both companies have vowed to increase marketing and advertising expenditure to reverse the decline.

Unilever, the Anglo-Dutch consumer goods titan, cut its earnings outlook for the year by half, from 10% growth to less than 5%, citing sluggish sales and aggressive marketing by rivals.

The company blamed this year's poor summer weather for a decline in sales, particularly among brands such as Wall's ice cream and Lipton iced tea. It expects the third quarter to be even worse than the second, which saw sales fall by 0.2%.

Increasing competition from rivals in Europe and Asia added to its woes as large discount stores and rivals such as Procter & Gamble cut prices.

The company admitted its diminished adspend was a contributing factor in falling sales, adding that "planned brand support activities for the rest of the year will therefore be maintained and in certain areas reinforced."

Over the last five years, Unilever has streamlined its brands from 1,600 to 400, which now account for some 95% of sales. The core brands are central to its 'path to growth' strategy, launched in 2000 by soon-to-retire co-chairman Niall FitzGerald.

Meanwhile, Colgate cut third and fourth quarter earnings forecasts to between 57 and 59 cents (€0.47-€0.48; £0.32-£0.33) a share, compared with analysts' predictions of 64-69 cents for Q3 and 66-71 cents for Q4.

It attributed the forecast reduction to rising costs for raw materials and increased marketing expenditure. Chairman/ceo Reuben Mark is nevertheless keen to maintain high adspend, claiming "it is vital that we maintain the aggressive commercial spending to build market share and blunt competitive efforts."

Shares of consumer products companies fell across the board on news of the profits warnings. Unilever dropped by 5.2%, Colgate slid by 11.2%, while rivals P&G, Gillette and Kimberly-Clark also dipped.

Data sourced from: New York Times; additional content by WARC staff