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Unilever (UN) Q4 Organic Sales Remain Flat Sequentially - Analyst Blog

Shares of Unilever N.V. (UN) declined 0.34% on Jan 20 after the company reported sluggish fourth quarter and full year 2014 results on continued weak growth in the emerging markets.

Fourth Quarter Results

In the fourth quarter 2014, the company’s revenues increased 2.4% to EUR 12.1 billion (**$15.1 billion), driven by a positive currency impact of 1.6% and 1.3% negative impact from net acquisitions & disposals.

Unilever delivered organic sales growth of 2.1% (in local currency) in the fourth quarter, driven by pricing gains of 2.5%, which offset volume decline of 0.4%. Organic sales were flat sequentially. However, organic sales growth was weaker from 4.1% growth recorded in the year-ago quarter.

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Full Year 2014 Results

In 2014, Unilever delivered core earnings of EUR 1.61 (*$2.14 per share), up 11% from the prior-year at constant exchange rates and up 2% at current market rates. Revenues however declined 2.7% year over year (in local currency) to EUR 48.4 billion (*$64.4 billion), hurt by unfavorable currency impact of 4.6%.

Nevertheless, the company delivered organic sales growth of 2.9% (in local currency) in full year 2014, driven by organic volume and pricing gains of 1.0% and 1.9%, respectively. Home Care, Personal Care and Refreshment segments grew but Foods was adversely impacted by the performance of the spreads business. However, organic sales growth was weaker than the prior year growth of 4.3%.

Core operating margin improved 40 basis points (bps) to 14.5% at current exchange rates, owing to lower overhead costs. Gross margin however declined 20 bps to 41.4% due to higher costs, partly offset by pricing, savings and mix.

The company stated that the pace of sales growth has been slowing down since 2013, mainly due to its operations in emerging markets, which account for two-third of its revenues. Growth was weak in emerging markets as economic pressure impacted consumer demand. The company’s organic sales growth in these emerging markets slowed down to 5.7% (in local currency), almost flat from the preceding quarter’s growth of 5.6%, but lower from the last year’s growth of 8.4%.

Weak emerging market growth in the current quarter with flat volumes was due to continued economic uncertainty, particularly in China. The slowdown in China prompted its distributors to reduce their inventory, which thereby resulted in a decline of about 20% in the region’s organic sales, particularly Personal Care and Home Care. In many regions, competitive intensity remains high in all categories, and notably in Personal Care and Home Care.

Developed markets declined only 0.8% in the reported quarter compared with a decline of 2.5% in the preceding quarter and a decline of 1.7% in the year-ago quarter. We note that the company is seeing early signs of improvement in North America as the impact of the economic recovery starts to be felt by consumers. However, the company continues to expect sluggishness in Europe.

Nevertheless, 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 its products with improvements in the existing markets. Unilever has also accelerated its cost containment measures to remove unnecessary costs and simplify the business. However, we cannot ignore the fact that the company’s sales are under pressure as a result of macroeconomic headwinds. Moreover, the company does not expect a significant improvement in market conditions in 2015. Also, it stated that the first quarter of 2015 will be softer, with growth improving during the year.

Unilever holds a Zacks Rank #4 (Sell).

Some better-ranked players worth considering in the consumer staples sector include Supervalu Inc. (SVU), Sysco Corp (SYY) and Clorox Co. (CLX). While Supervalu sports a Zacks Rank #1 (Strong Buy), Sysco and Clorox hold a Zacks Rank #2 (Buy).

**1 Euro= $1.24915 for the quarter ending Dec 31, 2014

*1Euro = $1.32925 at the end of the year Dec 31, 2014.


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