We are reverting to a Neutral recommendation from Underperform
on fast moving consumer goods giant
) due to decent third quarter 2013 results.
On Oct 25, Unilever reported decent third quarter 2013 sales
and recorded organic (excluding the impact of acquisitions and
disposals) sales growth of 3.2%. The increase was driven by
volume and pricing gains of 1.9% and 1.3%, respectively.
Increased investment in innovation and expansion of brands in new
markets contributed to the growth.
Though underlying sales in the developed markets declined in
the quarter due to global macroeconomic headwinds, the rate of
decline moderated from the year-ago quarter. However, the
company's underlying sales increased only 5.9% (in local
currency) in the emerging markets compared to 10.3% growth
recorded in the second quarter of 2013.
The company generates a substantial portion of its revenues
from the emerging markets. Hence, a slowdown in sales in this
region in the recent past resulted in a soft top line. Continued
weakness in Brazil, Russia, India and China as well as weaker
exchange rates, particularly in Brazil, India, South Africa,
Argentina and Indonesia, hit the company's sales in the emerging
markets in the quarter.
Of late, Unilever has been divesting its business to focus its
resources on the core food portfolio. Recently, the company sold
some of its hair care brands to an international hair care
company - Strength of Nature. In early-Oct 2013, Unilever sold
its Wish-Bone salad dressing business to food company
Pinnacle Foods Inc
) for $575 million, while in Jan 2013 the company sold its Skippy
peanut butter business to Austin, Minn.-based producer of branded
food and meat,
Hormel Foods Corporation
) for $700 million in cash. In Aug 2012,
ConAgra Foods Inc.
) bought its Bertolli and P.F. Chang's frozen meals brands for
However, a decline in spread sales volume and an uncertain
macro-economic environment are denting Unilever's profits. The
company has been posting weak sales in its spreads business since
the last few quarters. The company also closed its spreads
manufacturing plant in Atlanta in Jun 2013 due to a sluggish
spreads business. In addition, the developed markets are nearing
saturation and therefore experiencing sluggish growth. The
company also expects slowdown in the emerging markets to continue
for a few more years. Moreover, the debt crisis in Europe,
commodity cost headwinds and unfavorable foreign currency
translations remain a significant overhang. Unilever has a Zacks
Rank #3 (Hold).
CONAGRA FOODS (CAG): Free Stock Analysis
HORMEL FOODS CP (HRL): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
UNILEVER PLC (UL): Free Stock Analysis Report
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