Unilever Q2 earnings rely on European consumers

AMSTERDAM (AP) -- Unilever PLC, a major producer of consumer goods such as Dove soaps and Ben & Jerry's ice cream, is due to report first half earnings before European markets open on Thursday.

WHAT TO WATCH FOR: Unilever, which only reports full financial results twice per year, surprised markets with a first quarter trading update that showed stronger-than-expected sales growth of almost 12 percent to €12.1 billion ($14.7 billion), despite woes in developed markets — in particular in its European base. Around 2.7 percent of its sales growth came from acquisitions, but the rest was from higher sales prices and volumes.

Unilever has not issued any profit warning this year, despite warnings from peers such as Danone and U.S. giant Procter & Gamble. Its guidance, however, has been vague: it aims to grow sales faster than the market while keeping margins steady over the medium term. This year, CEO Paul Polman has told investors to expect a "modest" improvement in operating margins, weighted toward the second half of the year.

"Opinions are mixed over whether Unilever can continue this (apparently strong) performance," said Charles Stanley analyst Tina Cook in a pre-earnings note.

The key "will be the ability to continue to harness the Asian opportunity to offset a weaker Europe," she said. She believes Unilever's margins may weaken slightly despite Polman's guidance, but rates the shares an Accumulate based on the company's "encouraging" first quarter performance.

Analyst Richard Withagen of SNS Securities, who rates the shares a Hold, said he was curious to hear how recent agricultural commodity price increases will impact Unilever. The company makes Magnum ice cream, Lipton tea, Knorr soups and Hellmann's mayonnaise, among many food products.

WHY IT MATTERS: Unilever is one of Europe's largest corporations. Its executives may have important insight into how badly worries about the European sovereign debt crisis are weighing on consumer behavior. Unilever does relatively more business in European countries that have been less affected by the crisis so far, such as Germany, but where the latest macroeconomic data have also been weakening.

WHAT'S EXPECTED: Analysts polled by FactSet, on average, expect second quarter net profit of €1.75 billion ($2.12 billion) on sales of €13 billion euros — though the company will release the first and second quarter combined.

LAST YEAR'S QUARTER: Net profit in the first half of 2011 was €2.235 billion ($3.12 billion) on sales of €22.1 billion.