Unilever Slumps as New CEO Faces Slowest Growth in a Decade

(Bloomberg) --

Unilever slumped after Chief Executive Officer Alan Jope backed away from his predecessor’s growth targets as consumers around the world jilt mainstream brands.

The maker of Ben & Jerry’s ice cream and Dove soap said sales gains will be slightly below guidance for 2019 and in the lower half of its expected range in 2020.

The stock fell as much as 6.6% in Amsterdam on Tuesday, the steepest intraday decline in almost three years. Analysts at RBC Europe said the new outlook implies fourth-quarter growth will be the Anglo-Dutch company’s weakest for more than a decade.

The forecast cut undermines Jope’s aim of showing that companies that emphasize social purposes can outperform rivals that don’t. Unilever has targeted annual growth of 3% to 5% since his predecessor, Paul Polman, fended off a takeover bid from Kraft Heinz Co. in 2017.

Jope, who took over earlier this year, maintained Polman’s goals. Reaching them has gotten tougher as Unilever struggles to keep up with shoppers shifting from mass-market brands to niche products and retailers’ private labels. Some of its rivals are pulling ahead.

While Unilever has bought the likes of Tatcha creams and Graze snacks while selling its margarine business, Nestle SA has moved aggressively to shed slower-growing operations under CEO Mark Schneider. Procter & Gamble Co. in October raised its full-year sales forecast.

Unilever needs “to make sharper decisions around its portfolio,” Martin Deboo, an analyst at Jefferies, wrote in a note to investors, calling it a “problem that we expect to be slow to fix, just when the absence of any emerging-markets rally denies Unilever its customary lifeboat.”

In its latest update, the company cited weakness in South Asia, West Africa and North America, after a third quarter in which growth missed estimates because of disappointing sales of ice cream in Europe and black tea across the developing world.

The slowdown follows a changing of the guard at Unilever. After Jope succeeded Polman, Chairman Marijn Dekkers announced last month that he was stepping down to make way for Danish businessman Nils Andersen.

Outlook Change

The company had previously said that 2019 sales would be in the lower half of the muliyear range. Unilever said the change to the outlook won’t affect profitability.

“Growth remains our top priority and we are confident we have the right strategy and investment in place to step up our performance,” Jope said in a statement.

India and West Africa contributed the most to the slowdown, Unilever executives said on a call. The Indian market, the company’s second-biggest after the U.S., should start to recover in the second half of 2020, it said.

Slowing consumption in India, home to more than 1.3 billion people, is weighing down makers of everything from shampoos to cars as the third-largest Asian economy expands at the slowest pace in six years.

Unilever owns a 67% stake in the listed subsidiary Hindustan Unilever Ltd., India’s largest consumer-products company. The unit cited the market slowdown and supply chain disruptions in an Oct. 14 earnings call, with Chief Financial Officer Srinivas Phatak telling analysts that the “near-term demand outlook continues to be challenging.”

India Slowdown

“We are very strongly developed in South Asia, so when India takes a slowdown, we definitely feel it more than some of our competitors,” Jope said on the conference call with reporters on Tuesday. “We are far from crisis conditions. It’s just a little more turbulent than we’ve previously seen.”

Unilever is accelerating the pace of cost cuts so it can reinvest more in its brands, with next year focused on new product releases, Jope said.

What Bloomberg Intelligence Says

“Robust economic growth in every region will be needed if Unilever is to have any hope of reaching even the low-end of its multiyear 3-5% organic-sales-growth target.”

-- Duncan Fox, BI consumer-goods analyst

Asia’s Economic Slowdown Hampers Unilever’s Organic Sales: React

While ice cream had a difficult third quarter in the U.S., it has been performing better and isn’t a reason for the outlook change, according to the company.

Unilever said it’s on track for its 2020 profitability goals and expects to regain lost market share in North America.

--With assistance from Bhuma Shrivastava.

To contact the reporters on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net;Thomas Buckley in London at tbuckley25@bloomberg.net

To contact the editor responsible for this story: Eric Pfanner at epfanner1@bloomberg.net

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