We maintained our Neutral recommendation on
), as the company continues to face the global macroeconomic
headwinds and remains exposed to unfavorable foreign currency
translations due to its considerable international presence.
Unilever commands a wide portfolio of globally recognized
flagship brands, such as Axe/Lynx, Lipton, Knorr, Dove, Lux, Rexona
and Sunsilk, catering to a fast growing consumer goods sector. This
helps the business segments to maintain a dominant share in the
market and the company recorded decent growth in the first half of
Moreover, Unilever has also been expanding in the emerging
markets of Brazil, India, Indonesia, Turkey, South Africa, China,
Mexico and Russia. The management is taking advantage of the
increasing population and growing per capita income of the emerging
markets and putting greater thrust on expanding in these
Unilever reported a healthy underlying sales growth of 5.8% in
the second quarter 2012 on the back of volume growth, product
innovation and brand building.
The company recently completed the sale of its North American
frozen food operations to
ConAgra Foods, Inc.
). The sale of the North American Frozen food operations is in line
with the company's strategy to exit the frozen food market. The
company has already divested its European frozen foods business.
Unilever is reducing its presence in the developed markets, which
have become saturated and are experiencing sluggish growth.
However, Unilever is facing high commodity and raw material cost
that is crippling its margins. As the company sources two-thirds of
its raw materials from agricultural commodities, which in turn are
heavily dependent on factors, such as weather, farming practices,
global demand as well as government programs and policies. Severe
drought conditions in the U.S. shot up the prices of soybean, corn
and wheat. Unilever continues to expect the commodity prices to
rise in 2012.
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.
Currently, Unilever holds a Zacks #4 Rank, implying a short-term
CONAGRA FOODS (CAG): Free Stock Analysis Report
UNILEVER PLC (UL): Free Stock Analysis Report
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