Unilever is a Goliath of the consumer products world but its latest quarterly results suggest some relative minnows are nibbling away its sales.
The maker of Dove soap, Lipton tea, Hellman’s mayonnaise and other major brands said Thursday that underlying sales grew 2.6% in the third quarter to 13.2 billion euros ($15.6 billion) — well short of analysts’ expectations of 3.9% growth and a 3% increase in the first half of the year.
Underlying sales were driven by emerging markets growth of 6.3%, while developed markets fell by 2.3%.
Unilever shares dropped 5.5% on the disappointing results, which the company blamed on, among other things, natural disasters in the U.S. and Mexico. Hurricanes caused about a week’s worth of lost sales in Texas and Florida, Unilever’s biggest U.S. markets, CFO Graeme Pitkethly said.
But in discussing weaker volumes for ice cream in the third quarter — Unilever brands include Ben & Jerry’s — the company also cited “new entrant competitive activity in North America.” Those competitors include upstart Halo Top.
“Life is becoming more difficult for the consumer goods giants, as competition from smaller, nimbler players intensifies and consumer preferences shift toward niche and alternative brands,” said Charlie Higgins, fund manager at Unilever shareholder Hargreaves Lansdown.
“Unilever has responded by cutting costs and raising prices,” he added. “However, these are short-term fixes. To succeed in the long term, Unilever will need to adapt its business model, becoming more agile and responsive to changing trends.”
As Reuters reports, Unilever was also hurt in the third quarter by its decision to reduce its advertising and marketing spending by 130 basis points in the first half of the year. It has been cutting costs in part to appease shareholders after it rejected Kraft’s $151 billion takeover bid.
“In our view, the seeds of Q3’s poor performance versus expectations were planted with the reduction in advertising and promotional spend in the first half,” said RBC Capital Markets analyst James Edwardes Jones.
“While natural disasters doubtless played a part, the fact is that Unilever’s Q3 performance came in below expectations in all geographies,” he added.