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Unilever Sees Toughest Inflation Since 2008 Financial Crisis

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(Bloomberg) -- Unilever Plc warned that costs for raw materials that go into shampoo, detergents and ice cream are increasing at the fastest pace in more than a decade, forcing the company to scale back profitability goals for this year.

The maker of Cif cleaners and Dove soap lowered its guidance for profitability Thursday, forecasting 2021 margins near last year’s level as improvement becomes more difficult. The shares fell as much as 5.8%, the steepest drop since February.

Unilever is joining rivals such as Procter & Gamble Co. in warning of rising price pressure. Higher raw material costs have become a growing concern for manufacturers as economies emerge from Covid-19 lockdowns. More expensive crude oil, palm oil, soybean oil and U.S. freight costs are forcing the U.K. consumer-goods maker to raise prices across product lines from bouillon cubes to hand sanitizer, though the company has to move slowly to avoid shocking shoppers, Unilever Chief Financial Officer Graeme Pitkethly said.

“This is something that a business like Unilever is able to handle, but it takes time,” Pitkethly said by phone.

Unilever is raising prices more quickly in markets such as Brazil, while remaining more cautious in France and Germany not to damp consumption and to honor agreements with retailers. It’s also raised prices of skin cleansing items in India and some products in the U.S. The company expects cost inflation to be in the high-teens in the second half, up from a previous estimate of low-to-mid teens, Pitkethly said. Unilever will increase prices at a faster pace through the remainder of the year to offset that impact, he said.

The first-half underlying profit margin narrowed to 18.8% from 19.8% a year earlier. Higher crude prices make it more expensive to produce home-care products such as detergents, while shower gels and soap products are made with palm-oil derivatives. Unilever is still struggling to achieve the 20% margin it had aimed to reach by 2020, having approached the target just before the pandemic.

P&G is implementing price hikes on diapers and feminine-care products by percentages in the mid-to-high single digits.

Unilever’s revenue rose 5% in the second quarter on an adjusted basis. Chief Executive Officer Alan Jope said underlying sales growth will be in its 3% to 5% range this year, even as comparisons become more challenging.

(Updates market reaction in second paragraph)

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