Unilever Sells Off Bertolli - Analyst Blog

By Zacks Equity Research,

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Unilever PLC ( UL ) recently completed the sale of its North American frozen food operations to ConAgra Foods, Inc. , ( CAG ) for a total cash consideration of $267 million, subject to regulatory approval.

While the agreement enables ConAgra to sell the goods using Unilever's Bertolli brand name, the company retains the trademark. The existing license for the use of the P.F. Chang's Home Menu brand name would however be transferred to ConAgra.

The Kentucky facility that was used to manufacture both these product lines will now be used by Unilever for the Bertolli-branded pasta sauce business.

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. The markets in these developed countries are mostly saturated and macroeconomic conditions are difficult. As a result, business in these markets has been sluggish and volumes have disappointed. Therefore, the company is making a strategic move to optimize its resources and allocate them to the more promising markets.

During the first half of fiscal 2012, Unilever expanded its personal care business in Russia, Brazil, and the Philippines through acquisitions. The company intends to strengthen its consumer goods operations in these fast growing emerging markets. An increasing middle-income population in these emerging countries along with positive consumer spending holds potential for growth.  With solid innovation and brand building, the company intends to drive growth in these markets in the near future.

On the other hand, the acquisition of Bertolli and P.F. Chang's Home Menu brands is ConAgra's fifth acquisition in the last four quarters. The acquisition will strengthen ConAgra's existing portfolio of frozen foods, which already includes brands like Marie Callender's Banquet, Healthy Choice and Kid Cuisine. As leading brands of frozen multi-serve meals, Bertolli and P.F. Chang's will support ConAgra Foods' strategy of expansion of core businesses and adjacent segments. The acquisition will further help the company to increase its international market share and private label business. 

We consider Unilever PLC's expansion in the fast-growing emerging markets a big positive. However, rising input costs and a difficult economic environment remain headwinds. The European debt crisis, intense competition from other established players and exposure to unfavorable foreign currency movement undermines the company's future growth prospects and profitability. Currently, we have a Neutral recommendation on Unilever PLC. The stock carries a Zacks #4 Rank (short-term 'Sell' rating).

On the other hand, we have a Neutral recommendation on ConAgra Foods. The stock carries a Zacks #3 Rank ( short-term 'Hold' rating). While the company's strong portfolio and brand name are positives, we prefer to stay on the sidelines as macro economic conditions in the U.S. are still sluggish and economic recovery may take some time.

CONAGRA FOODS (CAG): Free Stock Analysis Report
UNILEVER PLC (UL): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: CAG , UL

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