On Mar 30, 2015, Zacks Investment Research downgraded Unilever Plc UL to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold) due to continued weakness in the emerging markets over the past few quarters.
This fast-moving consumer goods giant has also witnessed sluggish results in the recently reported fourth quarter of 2014. Though organic sales grew 2.1% as pricing gains offset volume declines, sales were flat sequentially. Organic sales growth was also weaker than 4.1% growth recorded in the year-ago quarter.
The company’s organic sales growth in the emerging markets slowed down to 5.7% (in local currency), almost flat with the preceding quarter’s growth of 5.6% but lower than last year’s growth of 8.4%. The sluggish growth in the emerging markets and flat volumes were 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, particularly Personal Care and Home Care categories.
The company stated that the pace of sales growth has been slowing down since 2013, mainly due to its operations in emerging markets, which account for two-third of its revenues. Growth was weak in emerging markets as economic pressure impacted consumer demand. Foreign exchange is also a major headwind for Unilever as it has significant exposure in the emerging markets.
Other than emerging markets, developed markets have also been showing weak results due to macro-economic headwinds. Though the company is seeing early signs of improvement in North America, it continues to expect sluggishness in Europe.
Unilever has also been witnessing a slowdown in its spreads business, which is hurting profits at its Foods segment. However, the decision to separate its spreads business is expected to improve the division’s performance, going ahead.
Though Unilever has strengthened its portfolio through a number of acquisitions and has divested some of its non-core food portfolio in North America to deliver sustainable growth, a slowdown in developed markets as well as emerging markets continues to remain a concern for Unilever. Along with that, currency headwinds and volatile input costs continue to hamper its growth.
Other stocks worth considering in the consumer staples space include Tyson Foods, Inc. TSN, Flower Foods, Inc. FLO and SUPERVALU, Inc. SVU. While Tyson sports a Zacks Rank #1 (Strong Buy), Flower Foods and Supervalu hold a Zacks Rank #2 (Buy).
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
Be the first to comment