The Anglo-Dutch consumer goods giant has issued an update to reassure investors that it is still on track to reach its double-digit earnings growth targets. While the consumer goods market may suffer from slowing demand, Unilever still seems healthy and looks like it may well develop into the sleeker, more focused business it is trying to become.
In an update, based on progress made in April and May, Unilever has clarified its current position and outlook for investors. The maker of Hellmann's mayonnaise, Magnum ice cream and Gorton's frozen foods claims to be on track to reach its targets of double-digit earnings growth this year. Q2 sales are expected to grow nearly 4% overall compared to the same period last year, while its key brands grow at more than 4.5%. Including the effect of acquisitions and disposals, total sales are forecast to increase by 15%.
Operating margins are also expected to be up on last year. In addition to the Bestfoods acquisition and associated synergies, Unilever has been cutting costs through lower overheads resulting from the restructuring as well as supply chain and procurement savings. The combined effect is expected to improve margins by around 1.8%.
Unilever also announced that the upcoming introduction of the euro has brought about the next range of price increases earlier than would have otherwise been required. The company claimed that any price rises shortly before or after the single currency transition would make the changeover more confusing for the consumer. It was unwilling to be forced to keep prices still through the relevant period of late 2001 and early 2002, so it instigated the early price rises.
The company insists that it is making the price changes to move more in line with its target margin structure, rather than seizing an opportunistic moment to make a price hike. While it did not specify which products would be affected, it is understood that most of the increases have already occurred.
Last year key brands saw a growth rate of 4.3% and, despite the slow market, have shown few signs of trouble. This latest update should reassure investors that Unilever is continuing to move in the right direction and has not yet hit any snags in its "path to growth."