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Unilever drops guidance as virus changes consumer habits

By Siddharth Cavale
·3-min read
The logo of Unilever is seen at the headquarters in Rotterdam
The logo of Unilever is seen at the headquarters in Rotterdam

By Siddharth Cavale

(Reuters) - Unilever Plc ditched its annual sales targets on Thursday and warned that its performance could deteriorate in the current quarter as it adjusts to a world in which people consume more at home.

The Anglo-Dutch maker of Dove soaps and Knorr soups said it had been hit by changes caused by the pandemic, with more people eschewing restaurant visits and ice-creams in the sun and instead cooking their own meals.

"Things will get more difficult before they get better," Chief Executive Alan Jope said on a call, pointing specifically to the impact on ice cream sales and a food solutions business that caters to canteens, restaurants and cafes.

Unilever, however, said it was positive that people would focus more on personal hygiene, driving sales of laundry detergents, hand sanitizers and soap-based products even after the pandemic subsides.

The FTSE-100 listed company has accelerated production of hand sanitizers, once a small part of its business, and has 30 facilities globally producing the hydroalcoholic gel.

Unilever also said it would prioritize development of less expensive value for money products as it expects economies across the world to enter into a period of slow growth.

"We are adapting to new demand patterns and are preparing for lasting changes in consumer behaviour, in each country, as we move out of the crisis and into recovery," Jope said.

FLAT SALES

Underlying sales were flat in the first quarter, kept steady by increased sales in the United States and Europe, where consumers stocked up on laundry detergents, Domestos bleach, Cif cleaning products and personal hygiene items.

However, growth was stalled by stringent lockdowns that curbed restaurant visits and shopping in China and led to factory shutdowns that halted production in India from the middle of last month.

Sales of ice-cream out of home -- a 2 billion euro annual business for Unilever -- were badly affected s places such as parks, beaches and tourist sites were closed.

Unilever withdrew its sales performance targets for the year, which had forecast growth at the lower end of a 3%-5% range, saying it could not "reliably assess the impact" of the virus, although it said it would still pay its interim dividend.

Its rival Nestle is due to publish quarterly sales figures on Friday while France's Danone this week withdrew its financial guidance for 2020 but posted higher first-quarter sales.

Unilever shares, which fell as much as 5.5% in early trading, were down 2.2% at 4,151 pence by 1130 GMT.

"Unilever is proving to be less resilient than major peers so far and first half of the year will continue to look weak with a likely worse Q2," J.P. Morgan analysts wrote in a note on Thursday, pointing to U.S. rival Procter & Gamble's 6% underlying sales growth during the period.

Since China started reopening its economy this month, Unilever has seen "significant recovery," Jope said but cautioned that social distancing rules would continue to hit its food service business there. China contributes 5% to total group sales, with a fifth coming from food service.

Jope also said it was back up selling and manufacturing in India, its second-biggest market, at good capacities.

The pandemic has also pushed more people to shop online, with e-commerce sales rising 36% in the quarter. In the United States, those sales nearly doubled.

($1 = 0.9267 euros)

(Reporting by Siddharth Cavale and Tanishaa Nadkar in Bengaluru; Editing by Edmund Blair and Keith Weir)