Unilever’s Q3 Sales Pulled Down by Currency Headwinds

Total turnover fell 0.1% to €13.4 billion due to low consumer confidence in emerging markets

u1Unilever PLC (NYSE: UL), the second largest consumer goods manufacturer after Procter & Gamble Company (NYSE: PG) announced its Q3 FY16 financial results on October 13th, 2016.

The Europe-based Company operates through four main segments: Personal Care, Foods, Refreshment, and Home Care. The Personal Care segment offers skincare and haircare products, deodorants, and oral care products under brands such as Dove, Axe, Lux, Rexona, Sunsilk, Lifebuoy, Vaseline, and Signal. The Foods segment provides soups, bouillons, sauces, snacks, mayonnaise, salad dressings, margarines, and spreads under the Knorr, Hellmann’s, Rama, Becel, Maille, Maizena, Fruco, Kissan, Bango, Lady’s Choice, and Becel/Flora brands. The Home Care segment provides home care products under brand names such as Omo, Surf, Sunlight, Domestos, Comfort, and Pureit brands. The Refreshment segment offers ice cream and tea-based beverages under the Magnum, Talenti, Ben & Jerry’s, Cornetto, Grom, Lipton, and PG Tips brand names, as well as operates T2 stores. Read more about Unilever’s financial results below.

Q3 FY16 financial highlights

During Q3 FY16, Unilever’s total turnover declined 0.1% to €13.4 billion due to currency headwinds and weak economic conditions in a number of countries. The results were also negatively impacted by an increase in import prices due to weak sterling, high commodity prices and low consumer confidence in emerging markets.

u2However, sales increased by 3.4% at constant exchange rates, while underlying sales growth was 3.2%, toward the lower end of the 3%-5% range expected for the year. Underlying price went up 3.6%, while volume was down 0.4% compared to the year-ago period. Organic sales growth was lower than 4.7% growth in Q2 FY16.u3

Among the major geographical regions, the emerging markets grew 5.6% in Q3 FY16, weaker than 7.7% growth in Q2 FY16 and 8.3% in Q1 FY16. u4Many emerging markets continued to remain weak and volumes have also slowed down, particularly in Latin America where currency devaluation has pushed up consumers’ cost of living, squeezing disposable incomes.

u5In the Asian markets, Unilever witnessed weak growth during the reporting quarter. In India, consumer demand in skin cleansing was dampened by rising commodity costs, while in China sales were down due to intense price competition from local brands in laundry and a rapid shift to e-commerce. Encouragingly, the Philippines delivered double-digit growth during the reporting quarter, while Turkey and South Africa recorded price-led growth.

u6Unilever also witnessed improvement in North America and Latin America, despite a highly competitive environment. However, European markets remained challenging with subdued volume growth and continued price deflation in many countries. Growth in developed markets remained flat during Q3 FY16 versus 0.7% growth in Q2 FY16 owing to weak volume growth and price deflation in Europe.

Segmental highlights

Source: Unilever
Source: Unilever

Personal Care

Unilever’s Personal Care segment continued to grow through innovations while extending into more premium categories. During Q3 FY16, slower growth reflects intense competition in many markets. In deodorants, performance was driven by Rexona Antibacterial with 10x more odor protection, which is now available in 40 countries and the continued success of dry sprays in North America. In haircare, growth was driven by the successful Sunsilk re-launch and by the TRESemmé Beauty-Full Volume range with unique reverse conditioning system. In skin care, Simple demonstrated good growth driven by innovations in the naturals segment.


Unilever’s Foods segment witnessed growth during Q3 FY16 on account of strong performances in savory, led by cooking products in emerging markets, and dressings, driven by squeeze packs with proprietary easy-out technology and organic variants. Knorr and Hellmann’s updated their ranges with new packaging that highlighted the naturalness of their ingredients. Hellmann’s has also broadened its offering with hot and barbecue sauces. In spreads, the rate of decline has slowed in North America, but continued in Europe due to market contraction.

Home Care

Unilever’s Home Care segment growth was driven by innovations in the higher margin segments in Q3 FY16 and the successful roll-out of Omo with enhanced formulation and improved cleaning technology in 27 countries. Unilever launched new Surf handwash powder with water-saving technology in South Africa. Fabric conditioners continued to perform well supported by new variants of Comfort Intense with double-encapsulated fragrance technology that delivers long-lasting freshness. In household care, growth was driven by the successful Cif Power and Shine sprays and the roll-out of Domestos toilet blocks in Europe.


Unilever’s growth in the Refreshment segment in Q3 FY16 was driven by ice creams and strong innovations in its premium brands, including the new Magnum Double range, the Ben & Jerry’s ‘Wich sandwich and dairy free range, as well as new variants of Talenti, the premium gelato brand that has grown 60% since its acquisition in 2014. In leaf tea, growth was driven by T2, green and specialty teas. Unilever also introduced Pure Leaf, a well-established, ready-to-drink tea as a premium brand in the U.S.

Other highlights

u8Tesco dispute: For Unilever, Q3 FY16 was the first quarter after the Brexit vote, with a more than 16% decline in the sterling versus the US dollar post Brexit, resulting in higher costs of imported commodities. Unilever has incurred €600 million ($662 million) in higher costs so far in 2016 tied to currency devaluation, excluding the effect of the pound’s decline against other currencies. This has in turn put pressure on Unilever to increase the prices of its products.

Unilever, which is already struggling to achieve volume growth in Europe due to competition and low demand, has been forced to adopt the strategy of price deflation in Europe to keep volumes growing. However, Unilever said that it would start imposing price increases in the UK, which accounts for about 5% of its revenue.

This was seen recently when retail giant Tesco removed most of the Unilever’s products from its shelves temporarily as Unilever asked for a 10% hike in the prices of its products. Though the issue has been resolved, any such event in the future can add to Unilever’s woes.

u9Headwinds from commodities prices: Moreover, the prices of commodities like palm oil and crude oil have experienced a sudden jump in 2016. Crude oil has started trading above $50 a barrel from its lows of around $26 per barrel in January 2016. The rise in crude oil prices might continue as EIA said that it expects higher demand for the commodity in the near future. Also, according to the commitment of traders (COT) data, Commercials such as producers, hedgers, and physical traders have reduced their short positions in crude oil, pointing to a bullish trend. Therefore, under such circumstances, Unilever might continue to experience problems with commodity prices. For Unilever, the rising commodity costs in dollars, coupled with the sharp decline in the pound, have raised the cost of imported ingredients.

Guidance for FY17

Unilever is focusing on improving its products through innovation. While the company is introducing new products in some markets, it is re-launching some of its products with improvements in some existing markets. Unilever has also accelerated its cost-cutting measures to simplify its business.

Unilever has been relying on deodorants and hair-care products to augment revenues this year, amid waning sales of its margarine and bread spreads. It also added personal care and other consumer brands, including Dermalogica and Kate Somervile, and the Zest soap brands in 2015. In fact, Unilever has recently entered into many deals to fortify its position in home care and personal care products. These acquisitions will strengthen the company’s portfolio and add to its revenues going forward.

Stock Performance

u10Unilever’s stock stood at $43.00, slipping 1.33%, at the close on Friday, October 14th, 2016, having vacillated between an intraday high of $43.53 and a low of $43.00 during the session. The stock’s trading volume was at 2,701,004 for the day. The Company’s market cap was at $130.54 billion as of Friday’s close.

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