Theres no other way of saying it, Unilevers(LSE: ULVR) (NYSE: UL.US) full-year 2014 results, unveiled last week were disappointing. Underlying salesrose 2.9% during 2014, compared to analysts estimate for 3.1%. Further, management warned that this lacklustre growth rate would continue into 2015.
You see, Unilever which sells everything fromBen & Jerrys ice cream to Lipton tea and Flora spread is struggling to find growth. Emerging markets, which used to be key growth regions for the company, are no longer a sure-fire gateway to growth. Competition from local brands, as well as slowing economic growth are two factors now weighing on Unilevers sales growth within these regions.
For example, during 2013 Unilevers underlying sales growth within developing markets expanded by 7.8%. However, during 2014 this growth rate had halved to 2.1%.Indonesia, India, Turkey and the Philippines delivered a year of double-digitgrowth, while growth in Africa and countries such as China andThailand was below historical run rates.
However, while emerging markets struggled, sales within the Americas has started to pick up. Underling sales growth in the Americas came in at 4.6% during 2013 and 6.3% during 2014. Nevertheless, sales growth in the Americas alone cant offset slumping emerging market demand. As a result, City analysts are now concerned that Unilevers peers will report similar growing pains.
Struggling to grow
It seems as if emerging markets are no longer the growth drivers they once were. Its not just Unilever reporting slowing growth in these regions. SABMiller noted a 7% decline in beverage volumes sold across Asia Pacific during the groups third quarter ended 31 December 2014 a far cry from the 6% organic volume growth reported for the same period last year. Volumes sold in Africa rose by 4%, Latin America 2%, Europe 2% and North America -3%, compared to volume growth of 5%, 3% -2% -2% for each region respectively in the year ago period. These figures clearly show that emerging markets are no longer the growth engines they once were.
Additionally, Reckitt commented back in October that the group would miss its initialsales forecast this year as, once again,weak markets across South East Asia and Latin America would hit growth overall.
Unfortunately, of the four companies here,PZ Cussons is likely to be more affected than most by slowing growth within emerging markets. Nigeria is a key market for the company, but Nigerias economy is highly reliant on the price of oil and falling oil prices have already statted to affect Cussons profitability.
In particular, for thehalf year to 30 November 2014, Cussons reported that operating profits had declined by 4% compared to the year ago period.
Thinking about the long term
So overall, it looks as if emerging markets are no longer the growth drivers they once were, which could start to become a serious problem for Unilever, Reckitt, SAB and Cussons. Shareholders might have to get used to slower growth rates in the future.
Nevertheless, even though Unilever’s sales growth is slowing, the company’s impressive free cash flow and bulky dividend yield make the company a perfect pick for any portfolio.
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