Unilever scraps its financial targets

The poor outlook for corporate earnings was underscored when Unilever on Thursday took the unusual decision to scrap its financial targets amid declining sales volumes, raising concerns that other consumer goods companies may follow suit.

The Anglo-Dutch maker of well-known products like Dove soap and Sunsilk shampoo refused to give financial guidance for this year or reaffirm its 2010 target of increasing profit margins by 15 per cent. Investors have been buying Unilever shares in recent months as a defensive investment, but their faith has been shaken by this decision.

Paul Polman, who became the chief executive officer on 1 January, defended the decision to scrap financial targets, saying he did not think it was "a good moment" to give long-term targets. "We have to be in tune with the environment," he said, and predicted other companies would follow Unilever's lead.

He said companies that set targets and then revised them were not credible, and that running a business to meet financial targets would result in management doing "the wrong thing" for the business. "This is an exceptional time...we live in a time of ambiguity."

A senior corporate banker told a London newspaper that Unilever's decision was a tactic that other blue-chips might deploy in coming months. GlaxoSmithKline too said on Thursday that it was dropping the guidance it gives on short-term earnings.

But while two of Unilever's competitors, Kraft Foods and Procter & Gamble, have cut guidance for 2009, neither has dropped it altogether. P&G is working with Goldman Sachs on selling its pharmaceuticals brands in a sign of the effort it is making to focus on core areas.