Unilever's Q2 Earnings & Sales Rise Y/Y - Analyst Blog
29 Juli 2013 - 6:00PM
Zacks
This fast-moving consumer products
giant Unilever N.V. (UN) posted solid second
quarter 2013 results. The company???s core earnings per share
increased 3.6% to EUR 0.76 (99 cents per share), driven by organic
sales growth and operating margin improvement. However, these were
partly offset by currency headwinds and slightly higher interest
rates. On a constant currency basis, earnings increased 7% in the
second quarter.
The company recorded underlying
sales growth of 5.0% (in local currency) in the second quarter. The
increase was driven by underlying volume and pricing gains of 2.6%
and 2.3%, respectively. Increased investment in innovation,
improved product quality and expansion of brands to new markets
contributed to the top line growth.
The company???s recent launches
like Axe Apollo deodorant and the continued success of TRESemm??,
Dove Men+Care as well as Clear hair products showed the benefits of
rolling out strong global innovations across multiple regions.
The company???s underlying sales
increased 10.3% (in local currency) in the emerging markets.
However, it was lower than the last quarter, as the company is
witnessing sluggish growth in the markets of Brazil, Russia, India
and China. Weaker exchange rates, particularly in Brazil, India,
South Africa, Argentina and Indonesia, hit the company???s sales in
the quarter. Sales in the developed markets also remained sluggish
due to global macroeconomic headwinds.
Unfavorable currencies also led to
a rise in commodity costs as it affects the price paid in local
markets. Unilever expects low- to mid-single digit inflation for
the year as a whole.
Segment
Details
Unilever witnessed strong market
share growth in Home Care and Personal Care categories. The Foods
category improved from the last quarter but still remains sluggish
due to weak performance of spreads, which offset the impressive
performance in savory and dressings. The company???s low-cost
business model in the Home Care and Refreshments categories
resulted in significant improvement in operating margin during the
quarter.
Investments
During the second quarter, the
company increased its stake in its Indian unit Hindustan Unilever
to 67.3% from 52.5% by acquiring 15% of the outstanding shares for
a total of EUR 2.45 billion in order to strengthen its position in
the emerging markets.In Pakistan too, the company has so far
acquired over 20% of its outstanding shares, taking its
shareholding above 97% through an investment of around EUR 350
million. We believe that with these investments, the company will
be able to gain more from the attractive markets of India and
Pakistan.
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.
Most recently in Jan 2013, Unilever agreed to sell its Skippy
peanut butter business to Minnesota-based meat producer
Hormel Foods Corporation (HRL). Last year in
August too, the company sold its North America frozen meals
business (brands of Bertolli and P.F. Chang) to ConAgra
Foods Inc. (CAG).
However, we remain concerned about
the uncertain macro-economic environment, 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
B&GFoods, Inc (BGS), which is currently doing
well and holds a Zacks Rank #1 (Strong Buy).
B&G FOODS CL-A (BGS): Free Stock Analysis Report
CONAGRA FOODS (CAG): Free Stock Analysis Report
HORMEL FOODS CP (HRL): Free Stock Analysis Report
UNILEVER N V (UN): Free Stock Analysis Report
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