82 640
Fashion Jobs
NEWELL
sr Analyst, Treasury
Permanent · NORWALK
NEWELL
Operations Manager
Permanent · FISHERS
NEWELL
Account Manager, Rubbermaid Commercial Field Sales
Permanent · NEW ORLEANS
AMRG
Sales Supervisor - Full Time
Permanent · ORLANDO
AMRG
Sales Supervisor- Full Time
Permanent · CABAZON
AMRG
Sales Supervisor - Full Time
Permanent · WOODBURY
AMRG
Sales Supervisor - Part Time
Permanent · WOODBURY
NORDSTROM
Asset Protection - Agent - Westfarms
Permanent · FARMINGTON
NORDSTROM
Asset Protection - Agent - LA Jolla University Town Center
Permanent · SAN DIEGO
NORDSTROM
Retail Stock - Tampa Rack
Permanent · TAMPA
NORDSTROM
Asset Protection - Agent - Southlands Rack
Permanent · AURORA
NORDSTROM
Retail Stock - Glendale Fashion Center Rack
Permanent · GLENDALE
NORDSTROM
Manager - Operations - Galleria at Roseville
Permanent · ROSEVILLE
NORDSTROM
Asset Protection - Security Ambassador - Valley Fair
Permanent · SAN JOSE
NORDSTROM
Retail Stock - Northbrook Rack
Permanent · NORTHBROOK
NORDSTROM
Asset Protection - Agent - Valencia Promenade Rack
Permanent · SANTA CLARITA
NORDSTROM
Asset Protection - Agent - Pentagon Center Rack
Permanent · ARLINGTON
NORDSTROM
Asset Protection - Agent - The Gardens
Permanent · PALM BEACH GARDENS
NORDSTROM
Asset Protection - Agent - Pinole Vista Crossing Rack
Permanent · PINOLE
NORDSTROM
Asset Protection - Agent - Gateway Rack
Permanent · AUSTIN
NORDSTROM
Retail Stock - Mountain Grove Rack
Permanent · REDLANDS
TORRID
Keyholder
Permanent · DALLAS
By
Reuters API
Published
Oct 20, 2021
Reading time
3 minutes
Download
Download the article
Print
Text size

Unilever margins in spotlight as inflation surges

By
Reuters API
Published
Oct 20, 2021

Unilever's battle with rising costs will take centre stage at its third-quarter results on Thursday, with investors focused on whether the consumer goods giant will cut its profit margin forecast for the second time this year.




Crude oil prices hit three-year highs on Monday, vegetable oil prices are at multi-year highs, and packaging, transport and labour costs are also rising as economies recover from the pandemic - a headache for central bankers and companies alike.

Tide detergent maker Procter & Gamble (P&G) on Tuesday hiked its full-year forecast for commodity and freight costs by about $400 million, or more than 20%.

Analysts warn Unilever could be particularly exposed because, unlike household goods specialist P&G, it also has a big food business selling products including Knorr soups, Magnum ice-cream and Hellmann's mayonnaise.

That means exposure to edible oils, milk and crude derivatives, such as caustic soda (used in making ice-cream), whose prices have also surged over the past three months.

Unilever also makes about 60% of its turnover in emerging markets, where inflation is fiercest.

"Since the second quarter, inflation has continued to creep up and another (margin) revision is possible," Barclays analyst Warren Ackerman wrote in a note.

In July, Unilever cut its operating margin forecast to "about flat" from "slightly up."

In contrast, packaged food rival Nestle kept its full-year operating margin guidance on Wednesday, helped by strong coffee sales and price hikes.

Analysts expect Unilever to report a 0.2 percentage point drop in full-year underlying operating margins, according to a company-supplied consensus. That margin was 18.5% in 2020.

Unilever has tried to offset costs by raising average prices by 2.2%, but Ackerman said that was hard in places like South East Asia where pandemic-hit consumers are switching to cheaper brands and local competition is tough.

JPMorgan Cazenove analysts estimate Unilever may need to raise prices by as much as 13% over the next two years to offset raw material and packaging pressures, which they say could reach 16% this year, at constant currencies and including hedging.

Packaging and raw materials represent about 70% of Unilever's total annual cost of goods of about 23 billion euros ($26.7 billion). A 15% increase translates to about 3.5 billion euros in additional costs.

Despite the pressures, Unilever said in July it was confident of delivering full-year underlying sales growth within its mid-term target range of 3-5%.

Some analysts are less bullish, though, saying recent lockdowns in Indonesia, Vietnam and Thailand will have curbed spending. Jefferies cut its third-quarter underlying sales growth forecast to 2.1% from 3.7%. Analysts on average expect a 2.2% rise.

There are other potential catalysts for Unilever's shares, as it works to sell a big part of its 2 billion euro tea business and is also reportedly in the sights of a top activist investor.

But for now, the attention is on whether it can transfer rising costs onto customers.

"The shares have been weak, suggesting the market does not think Unilever can pass them all on and that therefore the margin is at risk," said Tineke Frikkee, head of UK Equity research at Unilever shareholder Waverton Investment Management.
 

© Thomson Reuters 2024 All rights reserved.