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Unilever 1H & Q2 Organic Sales Up on Growth in Latin America - Analyst Blog

Zacks Equity Research
Updated

Unilever N.V.UN posted second quarter and first half of 2015 results, wherein the company witnessed improvement in the emerging markets and favorable currency impact. However, the company still remains cautious as consumer demand continues to be weak. Shares of this consumer products giant fell around 0.04% in after-market trading on Jul 23.

First Half 2015 Results

In the first half of 2015, Unilever generated adjusted earnings growth of 16% from the first half of 2014, including a favorable currency impact of 8%. In constant currency, core earnings increased 8%, driven by underlying sales growth, improved core operating margin and the impact of purchasing the Estate shares left in trust by the first Viscount Leverhulme, which was announced in May 2014.

The company’s revenues increased 12% in the first half of 2015, driven by positive currency impact of 10%.

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Unilever delivered organic sales growth of 2.9% (in local currency) in the first half, driven by pricing gains of 1.7% and volume growth of 1.1%. In the second quarter of 2015, organic sales growth was 2.9% (in local currency), driven by pricing gains of 1.5% and volume growth of 1.3%. Organic sales growth was better than the preceding quarter’s growth of 2.8%, driven by broad-based growth across the four categories.

While growth in Refreshment was due to price, volumes drove performance in Home Care and Foods.

Emerging markets grew 6% in the first half of 2015, driven by improved pricing and volume growth. The company witnessed some improvement in India and more stable conditions in China. However, the company is still struggling with declining volumes in Brazil and a soft economy in Russia.

In the developed markets, the company witnessed 1.3% decline in sales in the first half due to lower volumes in weak markets across North America. Though we saw improvement in North America in the first quarter, market growth has slowed down again due to competitive price pressure and destocking issues. Encouragingly, Latin America delivered double-digit underlying sales growth with improvement in volumes and pricing despite difficult macro-economic conditions and lower consumer confidence.

In Europe, the company saw broad-based growth in Central and Eastern Europe but weak momentum in the Nordic countries. Pricing declined across all categories, despite strong improvement in volumes. We note that the company continues to expect sluggishness in Europe.

Gross margin improved 40 basis points (bps) to 41.9% in the first half of 2015, primarily due to margin-accretive innovations and cost savings programs. Core operating margin also improved 50 bps in the same time frame to 14.5%, owing to lower overhead costs, helped by savings from Project Half and positive currency impact across all categories.

Outlook

Reportedly, the company is positive about its full year performance on the back of lower costs, higher efficiencies, and new product introductions as it was seen in the second quarter results.

Overall, we are encouraged by the fact that Unilever is consistently focusing on improving its products through innovation. While the company is introducing new products in some markets, it is re-launching some of its products with improvements in the existing markets. Unilever has also accelerated its cost containment measures to remove unnecessary costs and simplify the business. During the past six months, the company has made significant acquisitions such as that of Dermalogica, Murad, Kate Somerville and REN, thus strengthening its Personal Care portfolio.

However, the company still remains concerned about deteriorating trends in  Europe, Brazil and Russia. A very challenging situation in Greece; the fuel crisis in Nigeria and current volatility in the Chinese stock market might also hinder the company’s results.

Unilever has a Zacks Rank #3 (Hold).

Some better-ranked players in the consumer staples sector include Post Holdings, Inc. POST, Cal-Maine Foods, Inc. CALM and Campbell Soup Company CPB. All of them sport a Zacks Rank #1 (Strong Buy).

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CAMPBELL SOUP (CPB): Free Stock Analysis Report
 
CAL-MAINE FOODS (CALM): Free Stock Analysis Report
 
POST HOLDINGS (POST): Free Stock Analysis Report
 
UNILEVER N V (UN): Free Stock Analysis Report
 
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