Unilever Plc (UL) is set to report fourth quarter 2014 results on Jan 20. Last quarter, the company delivered revenues of Euro 12.2 billion (*$15.4 billion), which declined 2% year over year (in local currency). Let's see how things are shaping up for this announcement.
Factors to Consider this Quarter
Unilever’s sales growth has been sluggish since the fourth quarter of 2013, mainly due to a slowdown in emerging markets, which account for two-third of its revenues. The company’s organic sales growth in these emerging markets slowed to 5.6% (in local currency) in the third quarter of 2014, down from the preceding quarter’s growth of 6.6% and last year’s growth of 5.9%, due to continued economic uncertainty, particularly in China. We continue to expect sluggish sales due to soft growth in emerging markets in the upcoming quarter.
Developed markets like North America and Europe have also been weak since the fourth quarter of 2013. Organic sales in the developed markets declined 2.5% in the third quarter of 2014, 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 consumers have started to benefit from the economic recovery. However, both volume and pricing declined in Europe due to poor summer weather conditions.
In addition, the company expects low- to mid-single-digit commodity cost inflation in the fourth quarter of 2014, largely due to currency headwinds.
Amid economic headwinds, we are encouraged by the fact that the company is acquiring brands and divesting businesses to shape its portfolio to deliver sustainable growth. Most recently, Unilever acquired Minneapolis-based Talenti Gelato & Sorbetto brand to widen its position in the fast-growing gelato market and Camay and Zest soap brands from The Procter & Gamble Company (PG) to strengthen its skin care portfolio.
Unilever has also recently decided to separate its North American and European spreads business, which has been decelerating since many quarters, into a standalone unit to improve the company’s performance, per sources.
In spite of the positives, the company anticipates volatility in the external environment to persist.
Unilever holds a Zacks Rank #5 (Strong Sell). Estimates have also declined steeply for 2014 and 2015 over the past 7 days. The Zacks Consensus Estimate for earnings declined 2.5% for 2014 and 2.9% for 2015.
Other Stocks to Consider
Below are some of the stocks worth considering in the consumer staples sector that are likely to beat earnings this season. That is because these stocks have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3:
Supervalu, Inc. (SVU), with an Earnings ESP of +4.76% and a Zacks Rank #1 (Strong Buy).
Sysco Corp. (SYY) with an Earnings ESP of +2.44% and a Zacks Rank #2 (Buy)
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