Unilever Earnings Rise Amid Warning of Tough Second Half

Unilever (UN) shares fell some 6% in Thursday's trading after the company reported a 40% jump in quarterly profits that missed estimates. It also warned of a tough second half.

"We continue to operate under the assumption of slow economic growth, particularly in developed markets where consumer confidence remains fragile," said CEO Paul Polman. "We do not expect competitive pressures to ease, and our ability to increase prices will remain constrained despite rising commodity costs in the second half."

The maker of Lipton tea, Dove soaps, Knorr soup and Hellmann's mayonnaise said it expects to see overall commodity prices to rise 2% in 2010. That would affect the company's cost for raw material such as tea, milk, wheat and oil.

With the global economy emerging from recession, many consumers have remained cautious in their spending, often looking for the deals and better values. Procter & Gamble (PG) felt the same pressures in its recent results. With tight consumer spending, which prevent the companies from raising prices even amid commodity inflation, many consumer-goods companies experienced margin squeezes. That said, Polman added, "We still expect underlying price growth to turn positive towards the end of the year."

The food and consumer-goods giant reported a profit of €1.06 billion, or €0.36 a share, up from €758 million, or €0.27 a share, a year earlier. Analysts had expected profit of €1.08 billion, according to Bloomberg.

Revenue jumped 12.4% to €11.75 billion, mostly due to exchange rate fluctuations. Underlying sales growth, which disappointed investors, was 3.6% as selling prices fell 2% compared to the year-ago period. Growth of some 11% in emerging markets couldn't offset the 2.2% sales decline in Western Europe, which represents almost a third of Unilever's revenue.