ANALYSIS-Unilever overdoes pricing as volumes slide

By David Jones

LONDON, Aug 4 (Reuters) - Consumer goods giant Unilever Plc/NV is seeing the first signs of resistance to higher prices in Europe and America as its focus is switching to faster-growing emerging markets, analysts said on Monday.

Cost-conscious shoppers are moving to cheaper products and away from Unilever's (ULVR.L: Quote, Profile, Research) (UNc.AS: Quote, Profile, Research) top brands as the world's third largest consumer goods group raised prices sharply to offset a big rise in commodity costs this year, they added.

The Dove soap and Knorr soups maker hiked prices 7.4 percent in its second-quarter which led to lower volumes in Europe and America, while there were signs some of its big price rises were not sticking, like its Bertolli sauce range in Europe. The 7.4 percent price rise only drove second-quarter sales up 6.8 percent resulting in lower volumes and this together with lower advertising and promotional (A&P) spend sent Unilever's shares crashing 8.1 percent last Thursday, following its second-quarter results, and a further 2.1 percent on the Friday.

"An over-reaction? Not in our opinion," said industry analyst Jeff Stent at brokers Citi.

"This is not the return of Path to Growth, but we do see Q2 as a signal that life for Unilever is going to get difficult and likely more difficult than for sector peers, all of whom face far less commodity pressure," he added.

Unilever's failed Path to Growth strategy earlier this decade aimed to boost performance but ended in the Anglo-Dutch company's first ever profits warning in September 2004.

Stent says Unilever's shares are currently cheap but recommends staying clear, adding, "History and Q2 would suggest that others will fare better".