Unilever (UN) Q4 Sales Weak on Adverse Market Conditions

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Unilever N.V.UN has posted weak results. In the fourth-quarter 2016, Unilever's organic sales increased 2.2%, on a constant currency basis. However, the growth was weaker than the preceding quarter's growth of 3.2%, as higher pricing of 2.6% offset the volume decline of 0.4%.

Emerging markets improved 4.6% in the fourth-quarter 2016. The growth was however, weaker than 5.6% improvement in the third, 7.7% in the second and 8.3% in the first quarter. We note that Unilever has been delivering weak results since the past few quarters due to continued slowdown in the emerging markets, which account for about two-thirds of the company's total revenues. Though emerging markets offer long-term growth prospects, they are generally volatile.

In fact, Unilever's shares have been underperforming the Zacks categorized Soap & Cleaning Materials industry since the past one year. The stock declined by 1.7% in comparison to the industry's growth of 6.4%. Notably, the industry is part of the bottom 14% of the Zacks Classified industries (227 out of the 265). The broader Consumer Staples sector is placed at the bottom most of the Zacks Classified sectors (16 out of 16).

In the fourth quarter, many emerging markets continued to remain weak and volumes slowed down, particularly in Latin America, where currency devaluation pushed up consumers' cost of living, squeezing disposable incomes. The economic crisis in Brazil and removal of Rs.500 and Rs.1,000 notes from circulation in India presented additional headwinds.

Developed markets declined 1.2%, due to a fall in both pricing and volumes. The decline was lower than the break-even results in the preceding quarter.

The company witnessed sales growth as well as improved pricing in all the categories of Personal Care, Refreshment, Home Care and Foods. Except Personal Care and Refreshments, volumes declined in other two categories.

Full Year 2016 Results

Unilever's organic sales increased 3.7%, which was toward the lower end of the 3−5% range expected for the year. Sales growth was driven by higher pricing of 2.8% and volume growth of 0.9%.

Emerging markets grew 6.5% mainly driven by volume growth in Asia and price growth in Latin America. Developed markets declined by 0.2% with volume growth in North America offset by price deflation in Europe.

Gross margin expanded 50 basis points (bps) to 42.7% driven by margin-accretive innovations and acquisitions as well as savings programs. Core operating margin improved 50 bps to 15.3%.

Core earnings per share increased 3% on a constant currency basis.

Unilever NV Price, Consensus and EPS Surprise

Unilever NV Price, Consensus and EPS Surprise | Unilever NV Quote


Overall, we are encouraged by the fact that Unilever is consistently focusing on improving its products through innovation. While the company is introducing new products in some markets, it is re-launching some of its products with improvements in the existing markets. Unilever has also accelerated its cost containment measures to remove unnecessary costs and simplify the business.

The company has been relying on deodorants and hair-care products to augment revenues this year, amid waning sales of its margarine and bread spreads. Further, Unilever's acquisitions of Dollar Shave Club, Blue Air, Seventh Generation and Living Proof, has strengthened its position in home care and personal care products. These acquisitions will strengthen the company's portfolio and added to its revenues.

Apart from acquisitions, Unilever has also been shedding off assets in its battered food business. The category has been delivering sluggish growth due to lack of innovation and declining demand. Demand has been weak owing to saturated markets in the U.S. - the company's major revenue source.

Zacks Rank

Unilever has a Zacks Rank #4 (Sell).

Some better-ranked consumer staple companies include B&G Foods, Inc. BGS , Campbell Soup Company CPB and ConAgra Foods, Inc. CAG .

B&G Foods has an average positive earnings surprise of 12.16% in the trailing four quarters and also has a long-term earnings growth rate of 8.00%, while Campbell Soup Company and ConAgra Foods have a long-term earnings growth rate of 5.56% and 8.00%, respectively. All the three companies carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here .

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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