By David Jones
LONDON (Reuters) - Weak European markets, tougher competition and returning commodity price inflation are casting a shadow over Unilever Plc/NV second-quarter results next week as the consumer goods group looks to continue its recovery.
Chief Executive Paul Polman has led Unilever's (Unilever PLC Ord 3 1/9p) renaissance over his 18-month tenure but the challenge could stiffen after rival Reckitt Benckiser reported weak European trading and Procter & Gamble (Procter & Gamble Co) ups the pressure.
"Polman is no longer brand new and the market is worrying about whether H2 in staples is going to prove something of Skid Row relative to Q1 Easy Street," said analyst Martin Deboo at broker Investec Securities on Friday.
Polman's strategy has been to use falls in input prices to cut prices and raise marketing and look for volume-led growth and higher profit margins, but he has warned competition will get tougher and commodity costs will rise in the second half.
The world's third-largest consumer goods group and maker of Knorr soups, Dove soaps and Sunsilk shampoos reports on August 5 with larger rivals P&G reporting its April-June quarter on August 3 and then Swiss-based Nestle on Aug 11.
Reckitt Chief Executive Bart Becht said this week its European markets for brands like Cillit Bang cleaners and Vanish stain removers were growing at less than 1 percent, down from 4 percent only six months ago. Analysts said competition from rivals is set to intensify.
"The market for household goods in Europe and North America looks bad and it may need another two years or even more to revert to the 2-3 percent growth or more that one would hope for," said Tom Gidley-Kitchin at brokers Charles Stanley.
The pressure on Unilever was highlighted after French food rival Danone had cautious words on Europe this week, while P&G is raising the competitive pressure in Asia, much as the U.S. giant has done to Reckitt in Europe.
Analyst Alex Smith at brokers Nomura sees a risk of disappointment with Unilever's results from slowing sales volume growth and a fall in profit margins as competition and inflation increase and it sees a lack of pricing power.
(Reporting by David Jones; Editing by Michael Shields)