We reaffirm our Neutral recommendation on
) following the appraisal of its third quarter 2012 results. This
fast-moving consumer products giant posted robust underlying
sales growth and performed well in the emerging markets despite
global macroeconomic headwinds and unfavorable foreign currency
Why the Reiteration?
Unilever posted healthy third quarter 2012 sales results and
recorded organic (excluding the impact of acquisitions and
disposals) sales growth of 5.9%. The increase was driven by both
volume and pricing gains of 3.4% and 2.4%, respectively.
Increased investment in innovation and brand building also
contributed to the growth. Underlying sales expanded 12.1% in the
emerging markets while sales in the developed markets declined in
Overall, we are optimistic about Unilever's wide portfolio of
globally recognized flagship brands, which caters to a fast
growing consumer goods sector. This helps the business segments
to maintain a dominant share in the market. Unilever has been
strengthening its portfolio through a number of acquisitions.
In addition, Unilever has been divesting its businesses to
shed off its non-core businesses, thereby optimizing resources
and allocating them to the more promising markets. The company
has already divested its European frozen foods business long back
in 2006 and sold its North America frozen meals business (brands
of Bertolli and P.F. Chang) to
ConAgra Foods Inc
) in August 2012. Recently, Unilever agreed to sell its Skippy
peanut butter business to Minnesota-based meat producer
Hormel Foods Corporation
Unilever is also expanding its presence in the emerging
markets of Brazil, India, Indonesia, Turkey, South Africa, China,
Mexico and Russia in order to take advantage of the increasing
population and growing per capita income of the emerging markets
and focus on expansion in these markets.
Unilever is reducing its presence in the developed markets,
which have become saturated and are experiencing sluggish growth.
The macroeconomic climate of these developed nations is also not
conducive, in addition to their 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 faces high commodity and raw material costs that
are crippling its margins over many quarters. The company's
exposure to international markets also invites unfavorable
foreign currency translations, which remain a significant
Both Unilever and its peer
Procter & Gamble Co.
) are presently doing favorable business and hold a Zacks Rank #3
CONAGRA FOODS (CAG): Free Stock Analysis
HORMEL FOODS CP (HRL): Free Stock Analysis
PROCTER & GAMBL (PG): Free Stock Analysis
UNILEVER N V (UN): Free Stock Analysis Report
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