Unilever cuts sales target
Atkins diet takes a bite out of Slim Fast sales, further weakness in prestige brands hit Unilever.
October 20, 2003

LONDON (Reuters) - Anglo-Dutch food group Unilever cut its 2003 sales growth target for top brands such as Slim Fast as diets like Atkins cut into its sales growth

The second sales warning in four months sent the ADRs of Unilever (UL: Research, Estimates), the maker of Dove, Lux, Lipton and Knorr brands, more than 5 percent lower to $33.16 on the New York Stock Exchange. Unilever said sales for its top 400 brands would grow less than 3 percent this year.

The world's third largest food group after Nestle and Kraft (KFT: Research, Estimates) had already scaled down the growth target for its leading brands to 4 percent in June from 5 percent to 6 percent after a sluggish start to the year.

Unilever said it had seen further weakness in prestige brands, such as Calvin Klein perfumes, and competition from other diet regimes had been tougher than expected, diluting quarterly growth for its Slim Fast products.

Investors were upset -- the top 400 brands account for 92 percent of Unilever's total business.

"It is obviously disappointing in the context of management trying to rebuild credibility," said Brian Gallagher, fund manager at Gartmore Investment Management, which holds Unilever stock.

"They disappointed the market at the end of June with a trading statement, and I think there was a growing theory perhaps that they'd be getting back on track in terms of securing top-line growth."

Analyst Paul Hofman at Van Lanschot in the Netherlands said the sales warning was a big one. "There is a limit to growth and everybody knew it was challenging, but it is still a disappointment," he said.

However, Unilever reaffirmed its guidance of achieving low double-digit growth in earnings per share (EPS) in 2003.

"Strong operating margin expansion through restructuring and procurement savings programs continues to be the key driver of earnings growth for the year," the firm said in a statement.

Unilever said its leading brands grew by 3.2 percent in the third quarter of 2003, with home and personal-care brands expanding 5.1 percent and food brands growing just 1.8 percent.

Lehman Brothers said earlier on Monday it had removed Unilever from its European Recommended Portfolio.