Unilever Shares Dive 8%, Hit by Price Rises and Marketing Cutbacks

01 August 2008

LONDON: Unilever shares slithered down the greasy pole of investor confidence Thursday, losing 8% of their value, after ceo Patrick Cescau revealed that the consumer brands colossus had increased retail prices by up to 15% in its second quarter with a concomitant downward effect on sales volumes.

Said Cescau: "We're facing substantial [commodity] price increases which we're passing on to the consumer."

Overall sales volumes fell 0.5% over the period, reflecting declines in Europe and the US. The price rises, however, hiked underlying sales revenues by 7.4%.

Of equal concern to investors and analysts is Unilever's reduction in marketing expenditure. Although advertising spending rose by €100 million ($155.89m; £78.71m) in the first half, the firm slashed the amount spent on price promotions. Explained Cescau: "When we increase prices, we want the price increases to stick."

The moneymen's unease was manifest. Bernstein Research analyst Andrew Wood reflected the views of many of his colleagues: "From a competitive perspective [Unilever] are losing impact because their competitors are still continuing to spend."

He pointed to the likes of Danone, Cadbury and Reckitt Benckiser, all of which are maintaining current levels of marketing spend - or even upping them.

The current strength of the euro depressed pre-tax profits for Q2, which fell 4% at actual exchange rates to €1.3 billion, while total sales fell 1% to €10.3bn. At constant rates, pre-tax profits would have been 4% higher, and sales up by 6%.

Data sourced from Financial Times; additional content by WARC staff