Unilever warns of even higher inflation next year

NEW YORK: Unilever warned inflation was likely to accelerate next year, keeping the pressure on consumer goods companies as they hike prices to try to offset surging energy and other costs.

The maker of Dove soap and Knorr soup beat third-quarter sales growth forecasts on Thursday and kept its full-year profit margin guidance, defying some analysts’ fears of a cut.

However, finance chief Graeme Pitkethly saw little let up in inflationary pressures, in a potential blow to central bankers who are hoping the current spike in prices will be transitory.

“We expect inflation could be higher next year than this year,” he said on a media call.

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The maker of Ben & Jerry’s ice cream said underlying sales rose 2.5% in the three months ended Sept. 30, above the 2.2% forecast by analysts in a company supplied consensus.

Growth was helped by demand in the United States, India, China and Turkey, while a 4.1% increase in prices more than offset a 1.5% decline in volumes.

More than two-thirds of the volume decline came from South East Asia, where a rise in cases of the Delta variant of the coronavirus forced governments to implement stringent lockdowns that curbed consumption.

Unilever shares were up 1.2% in early trade.

“Relative to low expectations this feels like a ‘good enough’ quarter to us, with decisive progress on pricing a positive for us in the current climate. But the underlying challenge remains the one of accelerating volume growth,” said Jefferies analyst Martin Deboo.

Consumer goods companies face soaring prices of raw materials such as energy, edible oils and packaging, as well as higher transport costs as economies recover from the pandemic.

KitKat and Nescafe maker Nestle raised its full-year sales target on Wednesday as it also hiked prices to cope with the extra costs.

But analysts say Unilever faces a tougher task as it makes about 60% of turnover in emerging markets, where inflationary pressures are fiercest. In July, the group cut its full-year operating margin forecast to “about flat” from “slightly up.”

The group said on Thursday that, despite cost inflation remaining at “strongly elevated levels” – such as a 3 billion euro ($3.5 billion) increase in outbound logistics and distribution costs this year – it was sticking with its latest margin forecast.

Palm and soybean oil and crude oil derivatives such as resin were some of key areas of cost pressures, it added.

Pitkethly said volumes fell by a high single-digit percentage in South East Asia, despite the company taking “negligible” pricing actions in the region, which contributes to about 14% of Unilever’s turnover.

The company also saw consumers there shift towards cheaper brands, which has stepped up competition in markets such as Indonesia.

“We are not as competitive as we’d like to be in South-East Asia,” Pitkethly said.

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