Unilever hit by sliding emerging market currencies

Reuters

* Q3 sales up 3.2 percent vs 5 percent in Q2

* Emerging market sales up 5.9 pct vs 10.3 percent

* Turnover down 6.5 percent to 12.5 billion euros

* Shares up 0.7 percent

By Martinne Geller

LONDON, Oct 24 (Reuters) - Unilever Plc reported slower sales growth after demand for its consumer goodswas hit by the devaluation of a handful of emerging marketcurrencies and other factors such as rising onion prices inIndia.

"This is a soft quarter without a shadow of a doubt," ChiefFinancial Officer Jean Marc Huet told Reuters in an interview OnThursday.

The Anglo-Dutch maker of Ben & Jerry's ice cream, Lipton teaand Dove soap posted a 3.2 percent sales increase in the thirdquarter, down from 5 percent in the second.

It had already warned in September that a slowdown inmarkets such as Indonesia, Brazil and India had accelerated andit expected quarterly underlying sales growth of only 3 percentto 3.5 percent.

Unilever generates more than half its annual sales fromdeveloping and emerging markets, where sales rose 5.9 percent inthe quarter - down from 10.3 percent in the previous threemonths but still stronger than the slight decline seen indeveloped markets.

Turnover fell 6.5 percent to 12.5 billion euros ($17.2billion), hurt by an 8.5 percent hit from foreign exchangerates.

"The reality is that the global economy is not in as goodshape as some would like to make out," Chief Executive PaulPolman said on a conference call. "I believe we have tocalibrate our expectations a little more as we navigate thesechoppy waters."

Polman added that in three decades operating in emergingmarkets, he had never seen such large declines in so manycurrencies at the same time.

"Whilst we normally can deal with one or another andcompensate for that globally, this really came as a shock to theglobal economy in total," he said.

Uncertainty over when the U.S. Federal Reserve will scaleback its bond-buying stimulus led to sharp falls in currenciessuch as the Indian rupee and the Brazilian real between May andSeptember.

The drops were compounded, Polman said, by other factorsincluding a government abolition of fuel subsidies in Indonesiaand a more than trebling in the price of onions in India - astaple cooking ingredient - that further weighed on consumers'buying power.

CROSSING CATEGORIES

Unilever's performance looks relatively weak compared withpeers such as Nestle, the world's biggest foods group,which said last week competitive pricing helped it lift salesgrowth in spite of tough conditions in emerging markets andEurope.

Reckitt Benckiser earlier this week reportedhigher-than-expected sales and raised its outlook.

Huet said Unilever's business crosses so many categories,including basics like shampoo and food used by people at alllevels of the economy, while Reckitt's goods - like dishwasherdetergent and headache tablets - appealed to higher-incomeconsumers more immune to economic volatility.

Unilever's currency hedges typically give it a window ofthree to six months, during which time it can work to raiseprices in local markets hurt by devaluations. Selectiveincreases are expected to help in the coming quarters, it said.

For the full year, currency should hurt sales by about 6percent and profit by about 7 percent, Huet said.

In North America, third-quarter sales volume fell due to adecision to stop selling some low-margin ice cream products andcontinued weakness of the company's margarine business.

Also, Unilever's market share in the high-margin personalcare business was hurt by promotions by rival Procter & Gamble, whose Pantene and Herbal Essences shampoos compete withUnilever's Tresemme.

The company said it expects sales growth to improve in thefourth quarter, helped by new products such as Vaseline bodysprays in Europe and Tony & Guy hair products in the UnitedStates. Still, Polman said developed markets like the UnitedStates were not recovering as fast as expected.

Following the divestiture of some less-profitable brandsincluding Skippy peanut butter and Wishbone salad dressings,Polman said there were some small businesses left to sell but hedeclined to name them.

"It's better to announce the sale than to preannounce theintention," Polman said.

Unilever shares were up 0.7 percent in London at 1045 GMT.

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