Unilever Plc(UL) has been posting dismal results since 2013 due to continued soft growth in the emerging and developed markets. In the third quarter of 2014, the results of which were reported on Oct 23, the company’s operations were hurt by macro-economic headwinds. Shares of Unilever declined 3.31% following the earnings announcement.
Revenues of this fast-moving consumer products giant declined 2% year over year (in local currency) to Euro 12.2 billion (*$15.4 billion), hurt by unfavorable currency impact of 2.6%. Acquisitions and disposals negatively impacted revenues by 1.5%.
The company delivered organic sales growth of 2.1% (in local currency) in the third quarter of 2014, driven by organic volume and pricing gains of 0.3% and 1.8%, respectively. However, organic sales growth declined from the preceding quarter growth of 3.8% and from 3.2% growth recorded in the year-ago quarter.
The company stated that the pace of sales growth has continued to slow down since 2013, mainly due to its operations in emerging markets, which accounts for two-third of its revenues. The company’s organic sales growth in these emerging markets slowed to 5.6% (in local currency), down from the preceding quarter’s growth of 6.6% and last year’s growth of 5.9%.
Weak emerging market growth in the current quarter with flat volumes was due to continued economic uncertainty, particularly in China. The slowdown in China prompted its distributors to reduce their inventory, which thereby resulted in a decline of about 20% in the region’s organic sales.
Developed markets declined 2.5%, weaker than marginal growth of 0.3% in the preceding quarter and a decline of 0.3% in the year-ago quarter. However, we note that the company is seeing early signs of improvement in North America as the impact of the economic recovery starts to be felt by consumers. The company’s pricing declined in North America, though sales volumes grew. However, both volume and pricing declined in Europe due to poor summer weather conditions.
Though the company’s sales are under pressure as a result of macroeconomic headwinds, Unilever is consistently focusing on improving its products through innovation. While the company is introducing new products in some markets, it is re-launching its products with improvements in the existing markets. Unilever has also accelerated its cost containment measures to remove unnecessary cost and simplify the business.
However, we continue to expect volatility in the external environment to persist for the remainder of 2014. In addition, the company continues to expect currency headwinds to hurt operations.
Unilever holds a Zacks Rank #4 (Sell).
Some better-ranked players worth considering in the consumer staples sector include Post Holdings, Inc. (POST), McCormick & Co., Inc. (MKC) and The Hain Celestial Group, Inc. (HAIN). While Post Holdings sports a Zacks Rank #1 (Strong Buy), McCormick and Hain Celestial hold a Zacks Rank #2 (Buy).
*1 Euro= $1.26229 for the quarter ending Sep 30, 2014.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment