COMMENT: Wet summer rains on FMCGs
Unilever has reduced its full year profits forecast.
A summer of lower than expected earnings due to bad weather, low consumer confidence and increased competition has led Unilever to issue an unexpected profit warning. However, the firm can take some comfort from the fact that it is not alone in suffering from this year's challenging trading conditions.
The Anglo-Dutch consumer goods giant Unilever, which manufactures household food brands such as Knorr, Findus, Marmite, Magnum and Ben & Jerry's has issued a surprise profit warning to shareholders following a disappointing summer. Unilever's shares fell by 6% following the announcement.
The most immediate reason for the downgrade was the lower than expected value of ice cream sales over the summer. Unilever is the largest ice cream manufacturer in the world, and this is therefore a core product for the company. The generally poor weather in northern Europe this summer severely affected sales of this partly seasonal product.
Unilever also blamed a fall in consumer confidence in the past few months. Sales of laundry detergents and haircare products have also suffered from growing competition in the Asian market, another key area for the company. Following this disappointing summer, Unilever predicted that sales of its 400 leading brands would fall in the third quarter.
However the company has showed that it has confidence in the underlying strength of its brands by announcing that it is to increase its spending on advertising and sales promotions, although details of this are not yet known. This will be accompanied by measures to rationalize and simplify Unilever's operations.
Poor summer weather can have an important influence on sales of certain consumer products, although this varies from one country to another. For instance, whereas sales of ice cream increase significantly in hot weather in Europe, American consumers have a year-round appetite for it.
Unilever's disappointment may be tempered by the knowledge that other big name consumer companies are struggling too - both Coca-Cola and Colgate Palmolive recently forecast below par results. However, the consumer giant would be right to focus attention on streamlining its operations and pushing its core products to ensure that it is not caught out by unforeseeable factors such as the weather in future.
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