(Bloomberg) — Unilever Plc warned that raw material costs for shampoo, detergent and ice cream are rising at the fastest pace in more than a decade, forcing it to scale back its profitability targets for this year.
The maker of Cif cleaners and Dove soap lowered its outlook for profitability on Thursday and forecast 2021 margins near last year’s levels as improvement becomes more difficult. The stock fell as much as 4.6%.
Unilever joins rivals such as Procter & Gamble Co. and warns of rising price pressures. Higher raw material costs have become a growing concern for manufacturers as economies emerge from Covid-19 lockdowns. More expensive crude oil, palm oil and US freight costs are forcing the UK consumer goods maker to raise shampoo and ice cream prices, though the company must act slowly to avoid shocking shoppers, said Unilever Chief Financial Officer Graeme Pitkethly.
“This is something a company like Unilever can handle, but it takes time,” Pitkethly said by phone.
Unilever is raising prices faster in markets such as Brazil, while remaining more cautious in Europe not to dampen consumption.
The underlying profit margin in the first half decreased from 19.8% a year earlier to 18.8%. Higher crude oil prices make it more expensive to produce household products such as laundry detergents, while shower gels and soap products are made with palm oil derivatives. Unilever is still struggling to reach the 20% margin it had set out to achieve by 2020, having reached the target just before the pandemic.
P&G is making price increases for diapers and feminine care products with percentages in the mid-to-high single digits.
On an adjusted basis, sales increased by 5% in the second quarter. Chief Executive Officer Alan Jope said he is confident underlying revenue growth will be between 3% and 5% this year, even as comparisons become more challenging.
That builds on a strong start earlier this year, when brands like Lipton tea and Hellmann’s mayonnaise benefited from workers staying at home.
(Updates with comments from CFO in third paragraph)
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