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Unilever NV (UN)
Q3 2007 Earnings Call
November 1, 2007 6:00 am ET
Jim Lawrence - CFO
John Rothenberg - SVP of IR
Charles Nichols - VP of IR
John Parker - Deutsche Bank
Marco Gulpers - ING
Julian Hardwick - ABN Amro
Robert Jan Vos - Fortis
Graham Jones - Panmure Gordon
Arnaud Langlois - JPMorgan
Thomas Rousseau - Rousseau Gardner
Jeff Stent - Citibank
Polly Barclay - Cazenove
Simon Marshall - Bear Stearns
» The Finish Line, Inc. F3Q10 (Qtr End 11/28/09) Earnings Call Transcript
» Cintas Corporation F2Q10 (Qtr End 11/30/09) Earnings Call Transcript
Now is a great time to be a part of the Unilever team. There's a lot of hard work still to be done, but there's great opportunity to contribute to a business that has already started to unlock its true potential. Some of you who are listening today I have already met; most of you, however, not yet.
Over the next few weeks, I hope to meet many more of you. Our forthcoming investor event in India will provide one opportunity and I'll also be taking some additional days to meet shareholders later this month, and into early December, just before we go into our next blackout. I cannot promise universal coverage straightaway, but I do hope that by the end of the year that most of you will know me a little bit better. In any event, I look forward in the near future to meeting all of you in person.
Today I am joined by John Rothenberg and Charles Nichols of our IR team. I am sure you know each of them quite well. As John will explain, our results in the third quarter are, very much, a continuation of the momentum established during the first half of 2007. Sustained organic top-line growth was at the upper end of our 3% to 5% range, delivered in a quality way.
We're focused on our growth priorities and we're supported by stronger innovation, improved speed to market, and better in-market execution. This all results in the third consecutive quarter of underlying margin improvement, despite a significantly tougher input cost environment, and we'll have more on that in a moment. And these results are against the background of our accelerating change program, change in terms of organization simplification, supply chain restructuring and portfolio development.
With this brief introduction, I now turn it over to John. John?
Thanks, Jim, and good morning everyone. As usual, I draw your attention to the disclaimer relating to forward-looking statements and non-GAAP measures.
Our sales in the third quarter were EUR10.2 billion, which is 1.2% ahead of last year. This was after 0.9% impact from disposals, and an adverse currency effect of 2.3%. The latter reflects the strengthening of our reporting currency, the euro, against a wide range of currencies.
Many of these currency movements date back through 2006. If today's exchange rates were to remain unchanged, the full year currency impact would come down from the 3% year to date to around 2.5%.
Underlying sales growth in the third quarter was 4.5%. But for the previously announced systems implementation in the United States, which moved EUR70 million of sales out of Q3 into Q2, underlying sales growth in the third quarter would have been 5.2%.
This means that growth momentum across all three quarters in 2007 has been pretty steady, at just over 5%. Within this, there has been a steady increase in pricing, from around 1% in the first quarter to just over 2% in the third.
Turning to our growth performance: by region: Underlying sales growth in Europe for the first nine months stands at just under 2%. The performance across Southern European markets, and in Central, and in Eastern Europe remained strong, with Russia, in particular, continuing to grow in the high teens. Performance in our main Northern European markets has been more varied, with some underlying improvement in France and Germany, but continued weakness in the United Kingdom.
Sales in the third quarter in these markets were especially impacted by a sharp decline in Ice Cream, caused by poor weather across Northern Europe. This lowered underlying sales growth in the whole region by around 200 basis points in the quarter to 0.7%.
Volumes in Europe are up by around 2.5% year-to-date, but pricing remains negative. We have raised prices in a number of categories, most notably in Spreads, Dressings and Savory, and we have more increases in the pipeline. However, at the same time, we have responded to a step-up in competitive promotional activity in a number of markets. This, together with substantially lower olive oil prices, has led to a small overall price reduction so far this year.
The Americas region grew by 4.2% year-to-date, and 2.8% in the quarter. The latter impacted by the EUR70 million of sales pull-forward in the United States. Without this, Americas' growth in Q3 would have been 4.8%. The US grew by 3.6% across the nine months, a number that is unaffected by the sales pull-forward. There is, as yet, little sign of a significant slowdown in US consumer demand affecting our business.
So far this year, we have seen good growth in the US across our foods categories, foods categories other than Ice Cream, in Personal Care and in laundry. In recent months, we have been taking some aggressive pricing action in some of our categories. This has had some impact on volumes, most notably in Personal Wash and Ice Cream.
Latin America grew by 5.1% year-to-date, with a slightly stronger third quarter driven by better growth in Mexico. Brazil continues to be a difficult market for us this year, where we face challenges from local competition in several categories, especially tomato products. Also in the third quarter, we raised prices in hair, which triggered some trade de-stocking. Other Latin American markets continue to grow strongly.