Unilever
(
UL
) is the second largest consumer goods company after Procter &
Gamble (
PG
). It recently issued its 'trading statement' which reports revenue
growth across geographies and product segments and it strayed away
from issuing its earnings guidance for the first quarter of the
current fiscal. We value Unilever with a
$35 Trefis price estimate
, at roughly 10% premium to its current market price.
Sluggish Volume Growth
While sales grew by 4.3% Q1 2011 compared to the same period
last year, the underlying volumes grew by only 2.5% with price
increases contributing the remaining 1.8%. Unilever's Savoury,
Dressings & Spreads division, which makes up over
41% of our price estimate
, witnessed a 0.4% decline in volumes due to a 2.6% average rise in
prices, effectively translating into a 2.1% growth in sales.
Operating Margins
The increase in prices could have been partly absorbed by rising
commodity costs, which alleviates our concerns regarding operating
margins. We had expected Unilever to raise prices to counter the
rising costs of raw materials (see Rising Food Costs Could Strain
Unilever's Grocery Share and Unilever's Agflation Challenge: To
Preserve Margins or Market Share). However, the low volume growth
hints at market share losses, which could have a more lasting
impact on the business as a whole. Market share losses due to
lower-priced substitutes typically take longer to regain than the
economic recovery, as consumers who experience acceptable quality
at reduced prices do not revert back to premium brands easily.
Western Europe Disappoints
While emerging markets have grown in double-digit growth rates
in spite of negligible price increases to the tune of barely 0.1%,
volumes tanked by a significant 2.8% leading to a 2.7% decline in
Unilever's sales in the region.
Here again, the acquisition of Sara Lee's personal care and
European fabric care business contributed to a 4.4% growth in
Western Europe sales, which was more than compensated by a 5.7%
decline partly on account of Sanex brand's divestiture to
Colgate-Palmolive (see Unilever's European Expansion Lifts Stock
and Unilever Sells Sanex To Colgate To Shed Weight Post Sara Lee
Deal).
See our $35 Trefis price estimate of Unilever's
stock here
.