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Highlights:
- Lower Sales Growth: Jefferies forecasts Unilever's third-quarter organic sales growth at 3.3%, below market consensus.
- Pricing Impact: Limited pricing power and competitive pressures could negatively affect overall sales.
- US Spending Slowdown: Exposure to a slowdown in US consumer spending poses a significant headwind for the company.
Unilever PLC (LSE:ULVR), the multinational consumer goods giant behind brands like Bovril and Vaseline, is at risk of missing its third-quarter sales growth expectations, according to a warning from analysts at Jefferies. The investment bank has forecasted organic sales growth of just 3.3%, which falls below broader market consensus. This anticipated shortfall is largely attributed to limited contributions from product pricing as Unilever faces a combination of disinflationary pressures and competitive challenges.
Pricing Pressures and Competitive Landscape
Jefferies analysts have highlighted a “negligible” contribution from product pricing in Unilever’s third-quarter performance. In fact, pricing could even present a negative impact on overall sales as the company seeks to regain competitiveness in its core areas. With input costs showing signs of stabilisation rather than significant deflation, Unilever is focused on maintaining its market position amid a tough pricing environment.
As a result, Unilever is deliberately adjusting its pricing strategy to remain competitive, particularly in key markets. However, this may come at the expense of immediate sales growth, making it difficult to meet market expectations.
Impact of US Consumer Spending Slowdown
Adding to Unilever’s challenges is its exposure to the slowing US consumer spending environment. The company, like many others in the consumer goods sector, is facing headwinds as US shoppers become more cautious with their spending. While inflationary pressures are easing, the knock-on effects of reduced consumer demand could hinder Unilever’s performance in one of its most significant markets.
Jefferies noted that while Unilever may benefit from stabilising input costs, it is unlikely to translate into a significant boost in profitability, given the broader macroeconomic conditions in the US. The company’s ability to pass on price increases has become more difficult, further dampening its growth prospects in the near term.
Analyst Downgrade and Stock Outlook
Jefferies has given Unilever an 'underperform' rating, with a price target of 4,100p, compared to its current price of 4,894p. The analysts believe that, despite a 25%-plus rally in Unilever’s share price year-to-date, the company is poised for a pullback over the coming year, particularly given its 19 times forward price-to-earnings ratio.
Unilever’s third-quarter results, due on 24 October, will provide further clarity on whether the company can navigate these challenges and meet market expectations.
