We reaffirm our Neutral recommendation on fast moving consumer
) following an appraisal of its first quarter 2013 results.
Why the Reiteration?
On Apr 25, Unilever reported strong first quarter 2013 sales
and recorded organic (excluding the impact of acquisitions and
disposals) sales growth of 4.9%. The increase was driven by
volume and pricing gains of 2.2% and 2.6%, respectively.
Increased investment in innovation, improved product quality and
introduction of brands in new markets contributed to the growth.
Underlying sales expanded 10.9% in the emerging markets while
sales in the developed markets declined in the quarter due to
global macroeconomic headwinds.
Unilever witnessed strong growth in Home Care and Personal
Care categories and modest growth in the Refreshment category,
despite weak ice cream sales in Europe. The Foods category was
sluggish due to weak performance of spreads, which offset
improved performance in savory and dressings.
Overall, we are optimistic about Unilever's wide portfolio of
globally recognized flagship brands, which caters to a fast
growing consumer goods sector. Unilever has also been
strengthening its portfolio through a number of acquisitions and
divesting its non-core businesses. The company divested its
European frozen foods business long back in 2006 and sold its
North America frozen meals business (brands of Bertolli and P.F.
ConAgra Foods Inc
) in Aug 2012. Later in Mar 2013, Unilever agreed to sell its
Skippy peanut butter business to Minnesota-based meat producer
Hormel Foods Corporation
), which is expected to close in 2013.
Unilever is 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. Last week,
Unilever agreed to increase its stake in its Indian unit,
Hindustan Unilever Limited to 67.28% from 52.48% for Euro 2.45
However, a decline in spread sales volume and an uncertain
macro-economic environment are denting Unilever's profits. The
company has posted weak sales in its spreads business compared to
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. Unilever
is thus reducing its presence in these markets owing to
disappointing volumes. Moreover, the debt crisis in Europe,
commodity cost headwinds and unfavorable foreign currency
translations remain a significant overhang. Unilever has a Zacks
Rank #4 (Sell).
Stocks That Warrant a Look
While we prefer to avoid Unilever until we see signs of
improvement, another food company
Flower Foods Inc
) carrying a Zacks Rank #1 (Strong Buy), is worth
CONAGRA FOODS (CAG): Free Stock Analysis
FLOWERS FOODS (FLO): Free Stock Analysis
HORMEL FOODS CP (HRL): Free Stock Analysis
UNILEVER PLC (UL): Free Stock Analysis Report
To read this article on Zacks.com click here.