What's in the Cards for Unilever (UN) This Earnings Season?

Unilever NVUN is set to report fourth-quarter 2016 results on Jan 26. Last quarter, the company delivered organic sales growth of 3.2% (in local currency).

Let's see how things are shaping up for this announcement.

Factors to Consider

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 strong long-term growth prospects, they are generally volatile.

Unilever NV Price, Consensus and EPS Surprise

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

Emerging markets improved 5.6% in the third-quarter 2016, weaker than the 7.7% growth in the second quarter and 8.3% in the first quarter. Many emerging markets continued to remain weak and volumes have also slowed down, particularly in Latin America where currency devaluation has pushed up consumers' cost of living, squeezing disposable incomes. We expect the trend to continue in the fourth quarter as well.

The Asian markets were weak in the quarter. In India, consumer demand in skin cleansing was dampened by rising commodity costs, while in China, sales were down due to intense price competition from local brands in laundry and a rapid channel shift to e-commerce.

Developed markets remained flat in the quarter as against 0.7% growth in the preceding quarter owing to weak volume growth and price deflation in Europe.

In fact, Unilever's shares have been underperforming the Zacks categorized Soap & Cleaning Materials industry since the past one year. The stock has declined by 1.5% in comparison to the above mentioned industry's growth of 7.4%. Notably, the industry is part of the bottom 11% of the Zacks Classified industries (237 out of the 265). The broader Consumer Staples sector is placed at the bottom most of the Zacks Classified sectors (16 out of 16).

Despite these challenges, we are encouraged by the fact that Unilever is focused on improving its products through innovation consistently. 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, the company has entered into many deals recently in order to strengthen its position in home care and personal care products. These acquisitions will strengthen the company's portfolio and add to its revenues.

Apart from acquisitions, Unilever has also been shedding off assets in its battered food business. The category has been recording 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.

We expect the company to continue to acquire brands which is in line with Unilever's focus on shaping its portfolio to deliver sustainable growth.

Few S&P 500 consumer staples stocks that have recently reported their quarterly results include General Mills, Inc. GIS , which reported second-quarter fiscal 2017 results on Dec 20. The company's earnings and revenues missed the Zacks Consensus Estimate. Organically, year-over-year sales growth is now anticipated to decline in the range of 3% to 4%, wider than the earlier expectation of flat to down 2% for fiscal 2017.

The Procter & Gamble Company's PGsecond-quarter fiscal 2017 earnings and revenues exceeded expectations . On Jan 20, P&G reported earnings of $1.08, which increased 3.8% from the prior-year quarter on higher margins. Currency-neutral core earnings per share improved 9%. Organically (excluding the impact of acquisitions, divestitures and foreign exchange), revenues grew 2% on the back of a 2% increase in organic volumes.The Cincinnati-based company raised its organic sales growth projection to a range of about 2-3% from 2% projected earlier for fiscal 2017.

McCormick & Company, Inc. MKC is scheduled to report results on Jan 25, before the bell.

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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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