Unilever shares tumble after volumes falter

By David Jones

LONDON (Reuters) - Shares in the world's third- largest consumer foods group Unilever (ULVR.L) (UNc.AS) fell sharply after second-quarter results showed price rises for products like Knorr soups and Dove soap slowed sales growth.

Anglo-Dutch Unilever on Thursday reported underlying sales rose 6.8 percent in the quarter, but the group raised prices by 7.4 percent implying some volume decline as cost-conscious shoppers reacted against the higher prices.

The maker of Sunsilk shampoo and Hellmann's mayonnaise also warned of softening economies in North America and Western Europe as it reported lower sales volumes in those regions, while commodity cost hikes gathered pace in the second quarter.

Unilever shares closed 8.1 percent lower at 13.88 pounds, the second-biggest faller in the FTSE 100 .FTSE, after underperforming the blue-chip index by 6 percent so far this year on concerns over future growth and commodity prices.

Unilever's rivals have shown less reliance on price with household goods group Reckitt Benckiser (RB.L) on track to see 10-11 percent sales growth this year with prices up just 2.5 percent with the rest from volume, while France's Danone (DANO.PA) is to launch cheaper yoghurts to boost growth.

U.S. food groups, such as Kellogg (K.N) also reporting on Thursday, have seen sales volumes rise as consumers trade down from restaurants and eat more meals at home.

Analysts had expected around one third of Unilever's sales rise to come from volume and the rest from price, and they see volume as a more reliable indication of long-term growth prospects than relying on short-term price hikes to boost sales.

"We see this as a poor set of results, with Unilever showing signs of returning to previous volume form. Furthermore, inflation pressures are only likely to build further," said analyst Jeff Stent at broker Citi.