After a tough year in 2014, Unilever N.V. UN started 2015 on a positive note with improvement in the emerging markets and favorable currency impact. The company is also positive for the rest of the year, citing improved prospects in major markets such as the United States, China and India. Shares of this consumer products giant rose around 4% after the results on Apr 16.
First Quarter Results
In the first quarter of 2015, the company’s revenues increased 12.3% to EUR 12.8 billion (*$14.4 billion), driven by positive currency impact of 10.6%.
Unilever delivered organic sales growth of 2.8% (in local currency) in the first quarter, driven by pricing gains of 1.9% and volume growth of 0.9%. Organic sales growth was better than the preceding quarter’s growth of 2.1%, driven by broad-based growth across the four categories.
Emerging markets grew 5.4% in the quarter, largely driven by improved pricing. Though the growth rate moderated from the preceding quarter’s growth of 5.7%, the company witnessed some improvement in India and more stable conditions in China. However, the company is still struggling with adverse economic conditions in Brazil and Russia. In the past year, Unilever’s sales suffered from a slowdown in emerging markets, which accounts for more than half of its sales.
Among the developed markets, the company is witnessing improvement in North America as the impact of the economic recovery is being felt by consumers. However in Europe, pricing declined across all categories, despite strong improvement in volumes. We note that the company continues to expect sluggishness in Europe.
Outlook
Reportedly, the company is positive about its full year results. The company expects currency to benefit 2015 sales by about 8% – 9% at current rates.
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 its products with improvements in the existing markets. Unilever has also accelerated its cost containment measures to remove unnecessary costs and simplify the business.
However, the company still remains concerned about deteriorating trends in the markets of Europe, Brazil and Russia. Unilever holds a Zacks Rank #4 (Sell).
Some better-ranked players worth considering in the consumer staples sector include Tyson Foods, Inc. TSN, Pilgrim's Pride Corp PPC and Hormel Foods Corp. HRL. All of them hold a Zacks Rank #2 (Buy).
*1 Euro= $1.1283 for the quarter ending Mar 31, 2015.
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