LONDON (Reuters) - Consumer goods giant Unilever's drive to increase volume growth paid off for the fourth quarter in a row as it beat forecasts with a rise in underlying sales in early 2010, with a boost from strong emerging market growth.
Chief Executive Paul Polman was cautiously upbeat seeing "green sprouts" of recovery -- as opposed to green shoots -- and saw a tale of worlds with robust growth from emerging markets offsetting prolonged stagnation in some developed ones.
"We continue to think that the recovery will be long and drawn out, and plan the business accordingly... We do not expect the environment to get better and we do expect the competition to get tougher," Polman told a first-quarter results briefing.
He warned investors not to run ahead of themselves pointing out commodity costs will rise in the second half of 2010 with tea, milk and crude oil all increasing, but he was sticking to his forecast for commodity inflation of 2 to 3 percent in 2010.
"As they say in Dutch, don't smoke too much pot, stay realistic," said the Dutch-born chief executive.
Emerging markets shone for the Anglo-Dutch Unilever (ULVR.L) (UNc.AS) with Asia/Africa/Eastern Europe sales growing 7.6 percent and Latin America up more than 10 percent. These markets account for half Unilever's sales, well ahead of its rivals.
Polman said strong innovation led to the growth in China, Turkey, Indonesia and Brazil as it launched brands like Vaseline for Men, Cif, Domestos and Brooke Bond teas in new markets.
"I continue to be encouraged by our performance in these fast growing competitive developing and emerging markets," he added.
Unilever Plc shares were up 3.5 percent to 19.84 pounds by 10:11 a.m. to be the FTSE 100 index's .FTSE biggest riser after it had underperformed the index of top UK stocks and the DJ European Food and Beverage index .SX3P by 6 percent this year.
"Unilever has come in with a strong set of figures which demonstrates that recovery is on track," said analyst Sara Welford at brokers Citi.
The world's third-biggest food and consumer goods group and maker of Ben & Jerry's ice cream, Knorr soup and Dove soap reported an underlying first-quarter sales rise of 4.1 percent, beating a consensus of 3.2 percent in a Reuters poll of 10 analysts and 3.5 percent growth in 2009.
Polman's strategy has been to cut prices and raise marketing, and despite a sluggish recovery and tough competition he is looking for volume-led growth and higher margins this year.
Unilever said quarterly volumes rose 7.6 percent, after price cuts of 3.3 percent, beating the 5.2 percent consensus forecast in the Reuters poll and reflecting the strong growth seen from rivals Nestle (NESN.VX) and Danone (DANO.PA).
Unilever's 4.1 percent increase in sales was behind Nestle's 6.5 percent rise and Danone's 7 percent, but Unilever's volume growth of 7.6 percent beat Nestle's 4.8 percent after Unilever cut prices last year to become more competitive.
The group's western Europe business had sluggish growth of just 0.2 percent, held back by tough trading in southern Europe, but volumes grew 4 percent helped by new products like Dove for Men, Magnum Gold ice-creams and Knorr stockpot.
Unilever's underlying quarterly earnings rose 32 percent to 0.34 euros per share, beating a consensus forecast of 0.32 euros collated by ThomsonReuters I/B/E/S, while operating margins rose 60 percentage basis points to 15.2 percent helped by on-going cost cutting and lower commodity costs.
Overall first-quarter group sales rose 6.7 percent to 10.1 billion euros ($13.5 billion) giving an operating profit rise of 17 percent to 1.4 billion euros.
It proposed a quarterly dividend of 0.208 euros per share.
U.S. rivals Procter & Gamble and Colgate-Palmolive (CL.N) will report quarterly results later on Thursday, and European rival Henkel (HNKG_p.DE) reports next week.
(Reporting by David Jones; editing by Karen Foster, Mike Nesbit)