UN Unilever NV

Unilever N.V. (UN) posted solid first quarter 2013 results. The company recorded underlying (excluding the impact of currency, acquisitions and disposals) sales growth of 4.9% (in local currency) in the first quarter. The increase was driven by volume and pricing gains of 2.2% and 2.6%, respectively. Increased investment in innovation, improved product quality and introduction of brands in new markets contributed to the growth. Unilever’s board also hiked its dividend by 10.7% (in local currency) in the first quarter.

This fast-moving consumer products giant also performed well in the emerging markets despite unfavorable foreign currency translations. Emerging markets underlying sales expanded 10.4% (in local currency) while sales in the developed markets remained sluggish due to global macroeconomic headwinds.

Segment Details

Unilever witnessed strong growth in Home Care and Personal Care categories and modest growth in the Refreshment category, despite weak ice cream sales in Europe. However, the Foods category was sluggish due to weak performance of spreads, which offset the improved performance in savory and dressings.

Personal Care:The segment delivered underlying sales growth of 8.3% in the first quarter, driven by volume gains of 5.6% and pricing benefit of 2.6%.

Home Care:The segment delivered underlying sales growth of 9.4% in the quarter, riding on volume growth of 5.2% and price increase of 3.9%.

Foods:The segment’s underlying sales declined 0.5% in the quarter as a 1.4% decline in volumes offset the positive pricing benefit of 0.9%.

Refreshments:  The segment delivered underlying sales growth of 2.2% in the quarter owing to price increase of 3.9%, which offset a 1.6% volume decline.

Overall, we are optimistic about Unilever’s wide portfolio of brands, which helps it to maintain a dominant share in the market. Unilever has been strengthening its portfolio by expanding through a number of acquisitions. Further, Unilever has been divesting its businesses to shed its non-core operations, thereby optimizing resources and allocating them to more promising markets.

Unilever sold its North America frozen meals business (brands of Bertolli and P.F. Chang) to ConAgra Foods Inc. (CAG) in Aug 2012. Later in Jan 2013, Unilever agreed to sell its Skippy peanut butter business to Minnesota-based meat producer Hormel Foods Corporation (HRL).

However, we remain concerned with the uncertain macro-economic environment, going forward, particularly in Europe. Though the company forecasts volume gains and strong free cash flow in the near-term, commodity cost inflation will continue to be a headwind. Unilever holds a Zacks Rank #4 (Sell).

However, you can consider Flower Foods, Inc (FLO), which is currently doing well and holds a Zacks Rank #1 (Strong Buy).

 
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