Unilever shares slim on Atkins diet

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LONDON, England (Reuters) -- Shares in Unilever fell nearly seven percent after the Anglo-Dutch consumer goods giant said it was unhappy with a slim 1.3 percent rise in sales of its 400 top brands, prompting management changes and action on new products.

Unilever, whose brands include Knorr and Hellmann's in food and personal care top-sellers Dove, Lux and Sunsilk, said Wednesday prestige perfumes like Calvin Klein and Slimfast diet meals continued to suffer in the first quarter.

Analysts said the top brands growth was disappointing. Some had expected sales as high as 3.5 percent after 2003's 2.5 percent. Unilever's big European food group rivals had showed underlying sales growth of over five percent.

"We are not happy with the short-term sales performance and action is being taken to address this," said Unilever Chairman Niall FitzGerald in a results statement.

He added that in the first three months of 2004 Unilever had seen a continuation of the tough trading seen for much of 2003, and warned it saw stiffer competition in some key markets.

A Unilever spokesman said actions being taken included management changes at its prestige perfumes division, more low-carbohydrate meals at Slimfast to counter the popularity of the Atkins diet, while it was countering tough price competition in France, Germany and the Netherlands with keener pricing.

Unilever shares were the biggest blue-chip loser in Europe, losing 6.6 percent to 524 pence by 1230 GMT in London, and off 6.9 percent at 54.75 euros in Amsterdam.

"They're obviously very disappointing top-line numbers. Our concern is they're going to have to spend more money, invest in brand development, and that's not a quick process and it's not a cheap process," said Nigel Cobby, managing director of European equities at JP Morgan.

Analysts pointed out the 1.3 percent top brands sales rise all came from volume increases and not price rises just showing how tough competition and pricing was in the market place.

"Things are getting tougher and Unilever is digging is to defend its position but we still see double-digit earnings growth for this year," said analyst David Lang at Investec.

Unilever investor relations head Howard Green said he was not expecting a big step-up in SlimFast sales in the first half of 2004, after it lost 15 percentage points of market share in 2003 in the U.S. diet foods market, but it had launched five new low-carb products which now accounted for a fifth of SlimFast sales.

The world's third-largest food group after Nestle and Kraft reported a seven percent rise in first-quarter net profit before exceptional items and amortisation (BEIA) of 851 million euros in line with forecasts of 687-926 million, while earnings per share (BEIA) rose eight percent, all at constant currency.

For 2004, Unilever reiterated it expects improved growth of its top brands above 2003's 2.5 percent, operating margins over 16 percent and low double-digit percentage earnings growth.

In February, Unilever abandoned its five-year target of five to six percent sales growth from its 400 leading brands by 2004 to focus more on improving shareholder value through a greater focus on share buybacks and dividend rises.

Unilever has battled throughout 2003 to reverse stagnating sales and gave two warning of lower sales growth during the year due to low-growth from frozen foods, Slimfast and prestige. Unilever first-quarter sales lag its two big European food rivals with Swiss-based world number one Nestle earlier this month reporting underlying sales growth of 5.1 percent and France's Danone sales up 5.7 percent.

Unilever stock has underperformed the FTSE 100 index by just over 20 percent over the last year and the DJ Stoxx Food & Beverages index by just under 20 percent after the two sales warnings during 2003.



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