I suspect Unilever (LSE: ULVR) (NYSE: UL.US) may be one of those companies that many people don’t know much about. It’s the name behind many of the brands we put in our shopping trolleys every week. It covers just about anything you could want from food and drink, to personal and home care products. It’s the ‘mother ship’.
Unilever is very much a part of our lives. And there is every chance it’ll continue to be part of our lives. I mean, can you really think of a better way to start your day than with Dove body wash? Ahem… anyway, it’s clearly a company with loads of brand loyalty — evidenced by its consistently high profit margins (averaging around 9% over the past five years).
Something unfortunate happened to Unilever yesterday, though, and it wasn’t the first time. A group of investors rushed for the exit signs after CFO, Jean-Marc Huët, was recorded as saying that global market growth had slowed. He threw some figures in there for good measure, saying specifically growth had slipped from about 2.5 per cent in the second quarter to less than 2 per cent. The company’s shares took their biggest fall in nearly a year shortly after he said that.
So is this something to worry about? Well, yes and no.
Less-than-enthusiastic comments on growth prospects, for value investors, are hardly what you want to hear. You have to understand, though, that the world isn’t what it used to be. Countries like China, India and many Latin American countries simply aren’t enjoying the sort of robust economic growth that they have become used to. China, for example, has slipped from yr/yr growth of over 10% to growth of just above 7%. The friendly folk at JP Morgan have summed it up well after saying that a possible slowdown in China, inflation in Argentina and geopolitical tensions in eastern Europe and the Middle East all put downside risk on Unilever sales.
All sounding familiar?
In October last year Unilever said it expected underlying sales growth of between 3% and 3.5% in the period, compared with a 5% rise in the second quarter. Shares dived then, too. This time around the company has forecast a further deceleration in organic growth from 3.8 per cent in the second quarter, to 3.4 per cent next month. When 60% of sales come from what is now seen as a shrinking market, investors start to take notice.
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You see, if someone said to you one day, “sorry old chap, but your salary’s been cut. You’ve been earning £150,000 a year. You’ll now take home around £145,000”, I know I’d try to hide my relief. That’s what’s going on here. Yes, the company has warned of slowing sales growth in the past, and yes it’s more of the same today — it’s certainly not great news — what it is not, though, is bad news. If anything, the growth rates Unilever is forecasting are a tad more sustainable.
Yes, Unilever is slowing down, but I suspect that’ll come as a relief for investors who are with the company for the long haul. So I think Unilever is perfectly capable of looking after your money.