Unilever confident of coping with higher costs

Consumer goods giant Unilever is confident about dealing with soaring commodity costs and competition, as it beat forecasts with a 5.1% rise in underlying fourth-quarter sales on Thursday.

The maker of Knorr soups and Dove soaps is facing sharp rises in commodity costs and said it will respond by raising some prices and by making 1 billion euros (USD 1.38 billion) of cost cuts in 2011, after saving 1.4 billion in 2010. Unilever Plc shares gained 0.4% to 18.65 pounds by 0825 GMT -- reflecting its confidence for 2011 and after beating forecasts -- after they had underperformed the FTSE 100 by more than 7% so far this year. "While the trading environment is undoubtedly tough, not least in H1, we believe Unilever is well placed to withstand the pressures," said analyst Graham Jones at Panmure Gordon. Chief executive Paul Polman, in his two-year tenure, has cut prices to inject a more aggressive competitive edge to the Anglo-Dutch group, but Unilever shares have underperformed recently on concerns about the pressures that lie ahead. "Despite intense competition and the return of commodity cost volatility, our objectives remain profitable volume growth ahead of our markets, steady and sustainable underlying operating margin improvement, and strong cash flow," Polman said in a results statement. The world's third-biggest food and consumer goods group posted underlying sales growth of 5.1% in the last quarter of 2010, compared with a consensus for 4.2%. All the increase came from higher volumes. Quarterly operating margins dipped 20 basis points compared with a consensus for a flat margin of 13%, according to a company-compiled poll. Dutch-born Polman has led Unilever's revival by driving sales volume growth and squeezing out high margins. Rivals Procter & Gamble and Colgate-Palmolive signalled tougher times ahead, however, by posting dips in quarterly income hurt by sluggish sales. Unilever has expanded rapidly in emerging markets such as Brazil, India and China ahead of its key rivals. It makes more than half its sales in these fast-growing markets but is seeing increased competition there, and faces spending more in developed markets to attract value-seeking shoppers. For the fourth quarter, earnings per share (EPS) rose 14% to 0.33 euros a share, ahead of a 0.30 consensus. Full year EPS rose 25% to 1.46 euros. The group proposed a quarterly dividend of 0.208 euros/share be paid in March after it started paying quarterly last year. Unilever is reporting ahead of European food peers Danone and Nestle.