On Feb 27, we revert back to a Neutral rating on fast moving
consumer goods giant
) from Outperform due to sluggish spread sales volume and
persistent macroeconomic headwinds despite reporting healthy
fourth quarter results.
Why Back to Neutral?
Estimates for Unilever have been declining ever since it
reported its fourth quarter results on Jan 23. Despite the
impressive results in the fourth quarter, estimates have declined
due to a decline in the spread sales volume and an uncertain
macro-economic environment, going forward.
The company has delivered weak sales in its spreads business
from last few quarters. The company has also recently closed its
spreads manufacturing plant in Atlanta, due to sluggish spreads
In addition, the macro-economic environment of developed
nations has saturated and is experiencing sluggish growth.
Unilever is thus reducing its presence in the developed markets,
as these markets are generating disappointing volumes.
Moreover, debt crisis in Europe and ongoing economic
challenges along with austerity measures taken by the European
government can badly impact the company's European supply chain
and the operations of the company.
The company also faces significant commodity cost headwinds
that is crippling its margins since last many quarters. The
company's exposure to international markets also invites
unfavorable foreign currency translations, which remain a
Following the release of fourth quarter results, the Zacks
Consensus Estimate for 2013 has gone down 2.5% to $2.31 per
share. The Zacks Consensus Estimate for 2014 has also declined
3.9% to $2.47 per share. With the Zacks Consensus Estimates for
both 2013 and 2014 going down, the company now has a Zacks Rank
Stocks That Warrant a Look
While we prefer to avoid Unilever until we see signs of
improvement in the company's performance, other consumer staples
stocks worth a look are
Green Mountain Coffee Roasters, Inc
Tyson Foods Inc
Hillshire Brands Co.
), each of which carry a Zacks Rank #1 (Strong Buy).
GREEN MTN COFFE (GMCR): Free Stock Analysis
HILLSHIRE BRAND (HSH): Free Stock Analysis
TYSON FOODS A (TSN): Free Stock Analysis
UNILEVER PLC (UL): Free Stock Analysis Report
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