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What's in Store for Unilever (UN) this Earnings Season?

Unilever NV UN is set to report fourth quarter 2015 results on Jan 19. Last quarter, the company delivered organic sales growth of 5.7% (in local currency), driven by pricing gains of 1.5% and volume growth of 4.1%.

Let's see how things are shaping up for this announcement.

Factors to Consider

Unilever has been delivering weak results since the past few quarters due to continued slowdown in the emerging markets, which account for about two-thirds of the company’s total revenues. Though emerging markets offer strong long-term growth prospects, they are generally volatile.

Emerging markets grew 6.8% in the first nine months of 2015, driven by improved pricing and volume growth. The company witnessed some improvement in India and more stable conditions in China. However,  it is still struggling with declining volumes in Brazil and a soft economy in Russia. Consumer demand is fragile and volume growth is barely positive in the key markets of operation. In fact, the company continues to see soft global markets with currency devaluation pushing up the cost of living and squeezing disposable incomes with no immediate sign of recovery.

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In the developed markets, the company witnessed 0.2% decline in sales in the first nine months of 2015 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. In Europe, pricing declined across all categories, despite strong improvement in volumes. We note that the company continues to expect sluggishness in Europe.

Though Unilever is consistently focusing on improving its products through innovation, accelerating its cost containment measures to remove unnecessary costs and simplifying the business; deteriorating trends in Europe, Brazil and Russia remain a concern. Sluggish consumer demand is expected to hinder the company’s results in the to-be reported quarter.

Unilever holds a Zacks Rank #4 (Sell).

Stocks to Consider

 The following stocks  in the consumer staples/retail sector are likely to beat earnings this season. That is because these have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3:

Flower Foods Inc. FLO with an Earnings ESP of +4.76% and a Zacks Rank #2 (Buy).

Hormel Foods Corp. HRL with an Earnings ESP of +2.74% and a Zacks Rank #2.

ConAgra Foods, Inc. CAG with an Earnings ESP of +1.70% and a Zacks Rank #2.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
HORMEL FOODS CP (HRL): Free Stock Analysis Report
 
CONAGRA FOODS (CAG): Free Stock Analysis Report
 
UNILEVER N V (UN): Free Stock Analysis Report
 
FLOWERS FOODS (FLO): Free Stock Analysis Report
 
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