Unilever leaves sales target unchanged despite strong start to year

By Martinne Geller

LONDON (Reuters) - Consumer goods giant Unilever (ULVR.L) (UNc.AS) left its sales growth target unchanged on Thursday despite a strong first-quarter performance, saying it expects markets for packaged goods around the world to remain difficult this year.

Swiss food group Nestle (NESN.S), a rival in some product ranges, also reported a rise in sales on Thursday, with underlying growth of 3.9 percent beating analysts' expectations as relatively moderate price increases were compensated for by higher volumes.

Unilever, the Anglo-Dutch maker of products ranging from Lipton tea to Dove soap, said it had expected emerging markets - where it gets more than half its sales - to become more difficult as economies in Latin America and Africa have been hit by the fall in commodities and energy prices, while growth elsewhere cools.

"We expected tougher markets and we're finding tougher markets," Chief Financial Officer Graeme Pitkethly told Reuters.

Nevertheless, Unilever's underlying sales, excluding the impact of changes in exchange rates, rose 4.7 percent, in line with analysts' expectations according to a company survey, and near the top end of its 3-5 percent target for full-year growth.

Including currency effects, turnover fell 2 percent to 12.5 billion euros ($14 billion).

The amount of goods sold by Unilever rose a better than expected 2.6 percent in the period while prices rose 2 percent, a rate which was below analysts' expectations.

"Unilever has clearly been more aggressive in increasing prices in emerging markets," Kepler Cheuvreux analyst Jon Cox said. "Nestle hasn't so far, but the CFO has made clear that is on the agenda for later in the year."

All packaged goods makers face slowing growth, changing consumer habits, increased competition and a new industry-wide enthusiasm for cost-cutting sparked by private equity firm 3G Capital's influence at Kraft Heinz (KHC.O) and Anheuser-Busch InBev (ABI.BR).

In response, Unilever is changing its product price architecture, its corporate structure and its budgeting practices.

It is beginning a much more detailed analysis of package sizes, prices and availability to drive sales growth. It said the programme should cover about 40 percent of turnover by the end of 2016.

It is also streamlining its structure to make the company more agile, and adopting "zero-based budgeting" under which all costs must be justified from scratch. These changes should result in annual cost savings of 1 billion euros by 2018, Unilever said.

"We continue to prefer Unilever to Nestle," said Canaccord Genuity analysts, citing their similar valuations and Unilever's stronger momentum and exposure to fast-growing personal care categories, as well as possible portfolio changes and more confidence in its cost-savings delivery.

($1 = 0.8892 euros)

(Additional reporting by Silke Koltrowitz in Zurich; Editing by David Clarke, Greg Mahlich)