Unilever's flat volumes send shares tumbling

By David Jones

LONDON (Reuters) - Food and consumer goods group Unilever posted a 6.8 percent rise in second-quarter underlying sales on Thursday but the gain came from price rises and with volumes largely flat the shares tumbled.

Anglo-Dutch Unilever (ULVR.L) (UNc.AS), the world's third largest consumer goods group and maker of Sunsilk shampoo, Dove soap and Knorr soups, also warned of softening economies in North America and Western Europe as commodity cost increases gathered pace.

The underlying sales rise for the April-June quarter came towards the top end of forecasts for a 5.4 to 7.2 increase and a 6.2 percent consensus, but sales volumes were down in Western Europe and there was some slower growth in key emerging markets.

Sales growth of 6.8 percent showed a slowdown from 7.2 percent in the first quarter and came as prices increased 7.4 percent. Allowing for some shift in volume between quarters, Unilever said underlying second-quarter volumes were flat.

"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. Today's results will come as a negative surprise to much of the market," said analyst Jeff Stent at broker Citi.

Unilever shares fell 7.2 percent to 14.02 pounds by 10:30 a.m., the second biggest faller in the FTSE 100 .FTSE, after underperforming the blue chip index by 6 percent so far this year due to concern over the growth outlook for its European and emerging market businesses.

"Although headline numbers beat expectations the quality of the performance is poor, hence the very adverse reaction in the market this morning," said analyst Jeremy Batstone-Carr at brokers Charles Stanley.

There was also some disappointment that Unilever, the world's third biggest consumer goods group, did not raise its 1.5 billion euro annual share buyback programme despite agreeing to sell its North American laundry business earlier this week.