Back to top

Analyst Blog

Unilever N.V. (UN - Analyst Report) posted solid fourth quarter and full year 2012 results. The company recorded underlying (excluding the impact of currency, acquisitions and disposals) sales growth of 7.8% in the fourth quarter.

The increase was driven by volume and pricing gains of 4.8% and 2.9%, respectively. All the categories performed well in the quarter. Increased investment in innovation and brand building contributed to the growth.

This fast-moving consumer products giant also performed well in the emerging markets despite global macroeconomic headwinds and unfavorable foreign currency translations. Emerging markets underlying sales expanded 10.8% while developed markets grew 4% in the quarter.

Full Year 2012 Results

Unilever’s core earnings (excluding one-time items) increased 11% (in local currency) to Euro 1.57 per share ($2.02 per share*), driven by the improvement in operating profit, reduced financing costs, lower tax rates and currency.

Underlying sales grew 6.9% in the 2012, comprising volume growth of 3.4% and pricing gains of 3.3%. Emerging markets underlying sales expanded 11.4%, while developed markets grew 1.6% in the current reporting year.

Despite higher commodity costs, gross margin improved 10 basis points (bps) to 40.0% on a currency neutral basis. The improved results were driven by pricing gains, cost saving initiatives and improved mix. The company also invested in its brands and increased its advertising spending. Overhead costs declined 20 bps in the year owing to business restructuring initiatives, leading to 30 bps increase in core operating margin to 13.8%.

Segment Details

Personal Care: The segment delivered underlying sales growth of 11.5% in the fourth quarter, driven by volume gains of 7.2% and improved pricing of 4.0%. For full year, underlying sales increased 10.0%, with volume gains of 6.5% and pricing gains of 3.3%.

Home Care: The segment delivered underlying sales growth of 10.4% in the quarter, riding on volume growth of 7.0% and price increase of 3.1%. For full year, underlying sales increased 10.3%, with volume gains of 6.2% and pricing gains of 3.9%.

Foods: The segment’s underlying sales increased 1.3% in the quarter as a 1.4% positive impact from pricing, partially offset by a 0.1% decline in volumes. For full year, underlying sales increased 1.8%, driven by pricing gains of 2.7% and offset by volume declines of 0.9%.

Refreshments:  The segment delivered underlying sales growth of 9.8% in the quarter, owing to volume growth of 6.7% and pricing increase of 2.9%. For full year, underlying sales increased 6.3%, with volume gains of 2.4% and pricing gains of 3.9%.

Overall, we are optimistic about Unilever’s wide portfolio of brands, which helps it to maintain a dominant share in the market. Unilever has been strengthening its portfolio by expanding through a number of acquisitions. Further, Unilever has been divesting its businesses to shed off its non-core operations, thereby optimizing resources and allocating them to more promising markets.

Unilever sold its North America frozen meals business (brands of Bertolli and P.F. Chang) to ConAgra Foods Inc. (CAG) in August 2012. More recently in early-January 2013, Unilever agreed to sell its Skippy peanut butter business to Minnesota-based meat producer Hormel Foods Corporation (HRL - Analyst Report).

However, the company faces high commodity and raw material cost that is impacting its margins since last many quarters.

We expect an uncertain macro-economic environment, going forward. Though the company forecasts volume gains and strong free cash flow in the near-term, commodity cost inflation will continue to be a headwind.

Unilever holds a Zacks Rank #2 (Buy). Other stocks that are presently doing well and hold a favorable rank include B&G Foods, Inc (BGS - Snapshot Report) and Flower Foods, Inc (FLO - Snapshot Report). Both the companies carry a Zacks Rank #1 (Strong Buy)

*Euro 1=$1.28608, i.e. average price for the year 2012.

Please login to Zacks.com or register to post a comment.