What Unilever just Said About Consumers Around the World: “It’s Really Tough out There”

What is it with these consumer-products companies that need to sell a lot of cheap stuff to a lot of consumers around the world? Over the last few days, one after the other reported what are more or less unvarnished quarterly revenue and earnings debacles.

At McDonald’s, global revenues fell 5% and net income plunged 30%. At Coca-Cola, international volume was up a measly 1%, but in the US, volume declined 1%. Revenues were down fractionally for the quarter and 2% year-to-date. Net income in the quarter dropped 14%. Revenues at third largest beer-giant Heineken, which brews its stuff in 70 countries, dropped 1.7%. People are scratching their heads: are consumers actually cutting back on beer? Other companies too have reported disappointing results.

On Thursday it was Unilever, the Anglo-Dutch giant maker of shampoos, deodorants, laundry detergents, ice cream… that warned in its quarterly report about what it looks like “out there,” not in the stock market, but in the real economy around the world.

“It is really tough out there,” said CFO Jean-Marc Huët. “We have been at pains to say that for a long period of time.” Consumers are in trouble and are cutting back across key markets, leaving the company with price pressures and crummy sales.

Revenues fell 2%. “Underlying sales,” which are adjusted for a variety of things, rose 2.1%, but it was the worst growth since Q4 of crisis-year 2009, and down from 3.8% in the prior quarter.

Unilever warned of a slowdown in all the right places, in the emerging markets, in Europe, and of stagnation in the US. Like other consumer-products companies, it complained about currency issues, political unrest, bleak economies, the wrong kind of weather, and other uncertainties that perplex consumers to no end and cause them to get stingy.

“We expect markets to remain tough…,” CEO Paul Polman said.

In the emerging markets overall, where nearly 60% of its revenues come from, underlying sales managed to increase 5.6%, down from 6.6% in the prior quarter, with Turkey, Indonesia, and the Philippines being particular bright spots. But Brazil is sliding into recession, Russia is slowing down as well, and China, oh my!

As China is entering its worst slowdown in many years, consumers are reacting by closing their wallets. Retailers and wholesalers are reacting to the newly prudent consumers by “de-stocking,” the company reported. The result was a “sharp slowdown.” Underlying sales plunged 20%!

Then there’s the problem in the developed markets: sales dropped 2.5%, while they were still growing fractionally in the prior quarter. In North America, sales inched up a barely visible 0.6%. And Europe – which had been fixed not long ago, based on the hype being propagated ceaselessly – has become unfixed again. Unilever bravely blamed “poor summer weather” across Europe for the lousy performance of its ice cream category. Whatever the reasons, sales dropped 4.3%.

“Europe is not around the corner by any means,” Huët admitted.

And after complaining about price pressures and outright “price deflation” in Europe – though overall prices went up, just not fast enough to doll up Unilever’s revenues – it then ironically reported the following about its entanglements in, well yes, price fixing allegations:

Unilever is involved in a number of ongoing investigations by national competition authorities. These proceedings and investigations are at various stages and concern a variety of product markets. Where appropriate, provisions are made and contingent liabilities disclosed in relation to such matters.

So how is Unilever grappling with these economic and weather-related issues? It’s introducing cheaper products, on the basis of shrinkflation. For example, it developed smaller ice cream cones that sell for €1 ($1.27) in Spain so that even newly impoverished, jobless, or underpaid Spaniards can buy one every now and then. CFO Huet explained it this way:

We’ve learned from the previous economic crises the importance of having such value brands in the portfolio that can capture some of the down-trading that inevitably happens when disposable income levels fall.

And that sums up the economic problems facing Unilever, Coca-Cola, McDonald’s, Heineken, and all the others: it’s an economic crisis for consumers who’re struggling with falling disposable incomes.

And then there’s the corporate response to all this: the requisite “savings program,” as Huët called it, “to apply all the levers to translate top line growth … into earnings per share.” Because that’s the only thing that matters.

So Unilever would cut expenses here and there, axe 1,400 people, and whittle down its exposure to pension costs, all of which will do wonders for the disposable incomes of those folks…. And that’s the vicious cycle of corporate cost cutting in response to strung-out consumers who’re cutting back because they’ve been hit with the consequences of corporate cost cutting.

In the US more than in most other countries, it all boils down to consumers because the economy is so dependent on them. Read… The High Price of Free Money: Now US Bankers Fear Financial, Social, or Political ‘Instability’

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  9 comments for “What Unilever just Said About Consumers Around the World: “It’s Really Tough out There”

  1. Chris
    Oct 24, 2014 at 7:07 am

    Its cheaper to make my own beer. I’ve gotten pretty good at it over the last year. Even with the initial upfront investment in the setup. $100 to $200(bottles, caps, fermentation bottles, jugs, etc, extract kits). the one time expenses except the extract kits or (all grain kits, more advanced and cheaper still) will pay for itself. Who can afford a 12 dollar six-pack when I can make a very good copy cat extract for $6 or $7 a six pack.

  2. Jungle Jim
    Oct 24, 2014 at 7:41 am

    The irony here is that these companies were considered to be the defensive equities for investors to wait out recessions in.

    “By the prick of my thumbs, something evil this way comes”.

  3. Petunia
    Oct 24, 2014 at 7:53 am

    Fashion magazines which are household names are now publishing every other month instead of monthly. The products they promote are out of reach for most women these days. These magazines are suppose to be the lifestyle bibles of affluent women and their markets are disappearing. Women are not shopping. I saw two upscale brands of women’s hair shampoo being sold in the supermarket, and I think it is because this is the only place women are spending money.

  4. Vespa P200E
    Oct 24, 2014 at 8:01 am

    The other famous soap maker P&G reported meh earnings with small decline in sales but whopping 34% decline in net income. Sounds like the other global soap maker Unilever is not doing any better. Heck even McD and other consumer staple companies are barely meeting their numbers. Wally mart is not doing well either.

    Sure sign that the consumers are pulling back from basic staples and rest of the say discretionary retailers sans high end may be in for a shock this X-mas season…

  5. lG
    Oct 24, 2014 at 3:42 pm

    Recession in 3 2 1 !

  6. Oct 24, 2014 at 5:59 pm

    More evidence that consumers — the same folks who are expected to borrow- then retire trillion$ in oil company loans-plus-interest — are flat broke. If a greasy hamburger made from ground up road kill is unaffordable what is left to buy?

    Meanwhile, in their desperate struggle to survive, businesses price themselves into bankruptcy, raising prices and raising them again … in their empty stores. The outcome will not be pleasant …

    http://energypolicyinfo.com/2014/10/report-warns-of-capex-crisis-for-oil-majors/

  7. williamwilliam
    Oct 24, 2014 at 8:49 pm

    Watch your wallet and be careful placing deposits. Companies are closing leaving customers without refunds:

    http://kxan.com/2014/10/24/austin-cosmetic-dentistry-suddenly-closes-its-doors/

    I’m about to spend thousands on kitchen countertops and this crap scares the hell out of me.

  8. jan frank
    Oct 25, 2014 at 8:09 am

    The few very very rich company directors and shareholders who siphon off most of the profits buy a lot less soap than their underpaid wage slaves who are paid so little these days they can hardly afford to buy all that good soap. If Unilever wants to sell more soap, they will have to raise the wages of the 99% – and the same applies to all those other conglomerates.

  9. Julian the Apostate
    Oct 26, 2014 at 2:05 am

    I drive OTR and stocking my truck for the month has jumped from $180 a month to $300. All the while my wages were stagnant (10 years) until this last April when we got a 2/cent a mile raise.
    I can’t blame my employer. In the last 10 years they have been hammered by new regulations on fuel, emission controls, and CSA2010, the new safety standard. Also more restrictive Hours of Service regs and Obamacare.
    All of those lectures my grandparent gave us about getting by during the Great Depression have come roaring back to me and I am acting on them.
    But trying to inform the youngsters about what’s coming is like talking to a wall. You say ‘pantry’ or ‘gold and silver’ and their eyes glaze over.
    I’ve never been a doomsday kind of guy. Not when the B-52’s were flying over my head in and out of Offut AFB in the ’60’s growing up and not in Y2K. But I feel this one in my bones. Winter is coming. -Stark family motto

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