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After many years of underperformance, emerging markets are shining in 2017. We can see signs of improving economic growth in many parts of the developing world. This rebound has benefitted multinational giants that derive a significant portion of their sales from emerging markets.

About the Company

Headquartered in London, UK, Unilever PLC (UL - Free Report) is a multinational consumer goods company. They employ ~169,000 people.

The company has a huge portfolio of more than 400 well-known brands including Dove, Lipton, Knorr and Ben & Jerry’s. Emerging markets account for about 57% of their sales. Seven out of every ten households around the world contain at least one Unilever product.

Better-than-expected Results

The company reported much better than expected results for the six months ended June 30.  Underlying sales grew 3.0%, with growth across all categories. Turnover increased 5.5% and gross margin improved by 40 bps.

Sales were driven by higher prices in emerging markets where volumes were flat. Segment wise, sales growth was strongest in refreshments business—with strong performances in both ice cream and tea businesses.

“The actions we are taking keep us on track for another year of underlying sales growth ahead of our markets, in the 3 – 5% range. We anticipate accelerating growth in the second half of the year driven by the phasing of our innovation plans and a step-up in brand and marketing investment. We now expect an improvement in underlying operating margin this year of at least 100 basis points and strong cash flow,” said the CEO.

The company also raised its guidance for the year after strong results.

 

 

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Returning Capital to Shareholders

 

The company has been returning a lot of cash to shareholders. The dividend yield is 2.65% as of now. They raised their dividend by 12% in April this year.

In the first half of the year they bought back shares to the value of €1.4 billion, on track to complete the €5 billion program by the end of the year.

Kraft Heinz Bid

Earlier this year, Unilever spurned a $143 billion unsolicited takeover offer from Kraft Heinz. Per Unilever, the deal did not make sense due to difference in their business models. Their spokesman said “it was best to step away early so both companies can focus on their own independent plans to generate value.”

The Bottom Line

For the past many years, sluggish growth and weak currencies in emerging markets posed challenges to multinational companies. But the situation has changed this year. Growth has rebounded strongly and domestic currencies in many developing countries have strengthened against the dollar.

In addition to a top Zacks rank, a Zacks Industry rank of 11 out of 265 (top 4%) and a dividend yield of 2.65% make the stock worth a look.

 

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