Anglo-Dutch consumer goods giant Unilever reported a 29 per cent fall in second-quarter earnings today as it took another writedown on Slim.Fast, but its shares rallied on signs of a turnaround at the group.
Unilever - the maker of Dove soap, Knorr soups and Lipton tea - said earnings were hit by a €353 million write off in the value of Slim.Fast as industry-wide sales of diet foods fall 25 per cent a year.
The group posted quarterly earnings per Unilever NV shares of €0.75, down 29 per cent and below analyst forecasts of €0.87-0.91. Net profits fell 26 per cent to €787 million, hurt by its second writedown on Slim.Fast, which Unilever bought in 2000.
Finance Director Rudy Markham said various weight-loss fads were confusing consumers about diet foods. The group wrote down Slim.Fast by €791 million in 2004 after it suffered from the popularity of the now largely discredited Atkins diet.
But analysts highlighted Unilever's strong underlying quarterly sales and stable market shares as signs the group was turning the corner from the woes of 2004, and Unilever Plc shares were 3.9 per cent higher at 572-1/2 pence by 10 a.m., the second-best performer in the FTSE 100 index.
Unilever Plc shares have gained around one pound since a September's profit-warning low of 449p, but they have underperformed the FTSE 100 by around 5 per cent since the start of 2005.
Unilever's quarterly underlying sales rose 3.3 per cent, its third successive gain, but were driven by extra advertising and promotional costs that depressed earnings.
Chief Executive Patrick Cescau warned of rising pressure on margins in the second half as Unilever spends to improve its competitiveness and restore top-line sales, while he expects no improvement in market conditions for the rest of 2005.
The group is trying to reignite sales growth after a dismal 2004 when it gave its first profit warning in its 75-year history and abandoned its sales and earnings targets, which led to a wide-ranging management shake-up.
The group's second-quarter operating profits fell 18 per cent to €1.265 billion as overall sales rose 1 per cent to €10.222 billion. The quarterly operating margin was 12.4 per cent, with the first-half headline margin falling to 13.7 per cent, off 1.4 percentage points from last year.
However, Unilever's quarterly underlying sales growth lags rivals such as Procter & Gamble, which reported a 9 per cent increase, and Danone's 7.6 per cent rise.