Unilever (UN) Q3 2016 Earnings Call

Unilever (UN) CFO Graeme Pitkethly said global growth remains anemic with Latin America being a notable laggard

“Overall, it is fair to say that the economic fundamentals remain weak and volatile. Since the start of the year, we’ve been flagging that we expect market conditions in Latin America to worsen. And that’s what we have been seeing. Just as in past cycles when currency is weaken the cost of living goes up faster than income and people either cut back on purchases or they down trade. Latin American markets are growing in local currencies through pricing. But consumer demand measured by market volume contracted by 10% in Brazil last quarter and fell by 7% in Argentina.”

Volume growth down in Asia

“In Asia, we’ve had a few quarters of very low price growth as commodity costs have been benign. This is now turning. Palm oil is up almost 70 percentage points over the last nine months and Brent crude is back over $50 per barrel. In categories like skin cleansing and laundry, this means a rebalancing of the growth mix with more pricing and less volume as the increases are put through. All these mean that for the moment aggregate market volumes in emerging countries are now slightly down on the same period last year.”

Benefitting from the trend of urbanization

“In Foods, our biggest opportunity is to develop the emerging markets. Already a €5 billion business for us that has been growing at more than 7%. Demand for our categories will only continue to increase as populations become more urban with more kitchens and with more women moving into paid employment. We are particularly well placed to meet this demand with the broad distribution reach we can command with our portfolio.”

Their Chinese e-commerce business has tripled in the last 2 years

“In China, sales were flat in the first half year but were slightly down in the third quarter. The market channel structure is shifting rapidly to e-commerce. Two years ago, this was just 3% of our sales, today it’s over 10%. By cutting out intermediaries like wholesalers this shift results in a structural reduction in trade stock levels. And this is likely to continue for some time to come.”

Not expecting the market conditions in the 4th quarter to look any different

“We are not expecting improvement in market conditions in the fourth quarter and indeed markets are likely to remain volatile and hence challenging for a while yet.”