LONDON (Dow Jones) - Anglo-Dutch consumer products giant Unilever N.V. on Thursday said second-quarter net profit tumbled 26.7% on another writedown of its SlimFast meal replacement business, but investors welcomed the sales growth at the restructuring company.

Unilever (UN), the maker of Ben & Jerry's ice cream and Dove soap, said net income for the quarter fell to 784 million euros, or 75 euro cents a share, from 1.07 billion euros , or 1.05 euros a share, in the year-earlier period.

Sales rose 1.4% to 10.22 billion euros, with underlying sales up 3.3%, driven entirely by volume. But the growth was partially offset by a negative 1.8% from disposals and a small negative impact from currency movements.

Analysts had expected earnings in the range of 87 to 91 euro cents a share. Unilever had written down 794 million euros of SlimFast's worth in 2004 amid the popularity of low-carbohydrate diets.

Shares of Unilever climbed 3.8% in London morning trade, however, as investors welcomed better-than-expected sales figures and in-line margins.

"Unilever reported a good set of second quarter results," analysts for Delta Lloyd Securities told clients.

"The top line growth figure is a real confidence booster in our opinion, while margin pressure remains within reasonable boundaries. These results are likely to trigger expansion of valuation multiples as Unilever is trading at a discount to its peers," it added.

Key rival Nestle declined 0.6%.

The operating margin came in at 12.4%, with the first-half margin down 1.4 percentage points to 13.7%.

"At the margin, the headline number is worse than expected due to a further writedown of SlimFast. Excluding the writedown, group margins were ahead by 30 basis points compared with our forecast of minus 107 basis points," analysts for Merrill Lynch told clients.

While Unilever said emerging markets were once again a key driver of growth in the quarter, it went on to admit that conditions in Western Europe, a region that still accounts for more than 40% of sales, remain challenging.

"We have to do more to improve our competitiveness there," said Chief Executive Patrick Cescau in a prepared statement.

Sales in the U.K., France and the Netherlands were particularly disappointing in the quarter while Eastern and Central Europe grew strongly. Across the region, Magnum 5 Senses ice creams are off

to a good start, Unilever said.

In the U.S., sales of new Country Crock side dishes and Bertollo frozen meals are also doing well.

Looking ahead, the group said it doesn't expect a significant change in the market environment for the rest of the year.

Cescau also noted that input costs and investment behind the company's brands would increase pressure on margins.

Unilever has been trying to boost sales after posting its first profit warning in its 75-year history last September. At the time, the group gave up giving sales and earnings objectives.

(END) Dow Jones Newswires

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