Its analyst Martin Deboo warned of “a potential weak start to the ice cream season”, after a cold second-quarter in the northern hemisphere.
Unilever’s weather worries were compounded by signals of weaker demand from emerging markets – particularly Brazil, the firm’s largest market. Widespread social unrest has rocked the country recently, as concern grew about its faltering economy and the cost of paying for the 2014 Football World Cup.
But Unilever shares had remained “curiously resilient”, said Deboo. Its shares had performed well in the second-quarter – ahead of Nestlé and Danone.
‘Curiously resilient’
Investec predicted second-quarter revenue growth of 5.1%. For the first half, it forecast a 40% margin improvement.
But it downgraded its 2013 financial year forecast by 6%. Deboo concluded: “Still a decent 12-month buy for us. We continue to like the story, given the shift towards personal care, potential to accelerate this via further disposals in foods and the potential for margins to surprise on the upside in 2013.”
Investec repeated its ‘buy’ advice on Unilever stock.
Panmure Gordon executive director Graham Jones agreed that the cold spring and problems in emerging markets were the challenges for Unilever. While the weather had been poor for ice cream sales, spreads were expected to show only a modest improvement in performance in the second quarter.
That contrasted with “a terrible performance” in developed markets in the first-quarter when like-for-like sales growth fell by 1.9%, partly reflecting one fewer trading day, said Jones.
Emerging markets
But the key question was whether Unilever would sustain its double digit growth in emerging markets, in the face of weaker economic conditions? “We think some slowdown should be expected, although for the biggest division, Asia/Africa/Russia, we only assume a modest slowdown from 9.2% in the first-quarter, to 8.7% in the second-quarter,” said Jones.
European like-for-like sales were predicted to fall by 0.8%, while the Americas were forecast to deliver 5.9% growth, similar to the first-quarter.
Unilever’s shares had outperformed the UK market by 6% over the past six months, but underperformed by 5% over the past three months, said Jones. He attributed this to economic concerns in emerging markets coupled with currency weakness in some key emerging markets.
“We continue to be fans of Unilever, and trading on a 7% discount to global peers the rating isn’t particularly stretched,” said Jones. “But the company does need to demonstrate progress in problem areas, such as weak foods growth and low margins in home care and refreshment.”
Meanwhile, R&R Ice Cream has announced the closure of its Leeds factory. All 135 staff will be offered roles at its Leeming Bar site in North Yorkshire.