The fast-moving consumer products giant Unilever N.V. (UN - Free Report) recorded underlying sales growth of 3.2% (in local currency) in the third quarter of 2013. The increase was driven by underlying volume and pricing gains of 1.9% and 1.3%, respectively. Increased investment in innovation and expansion of brands to new markets contributed to top-line growth.
The company’s underlying sales increased only 5.9% (in local currency) in the emerging markets compared to 10.3% growth recorded in the second quarter of 2013. The company generates a substantial portion of its revenues from the emerging markets. Hence, a slowdown in sales in this region in the recent past resulted in a soft top line.
Continued weakness in Brazil, Russia, India and China as well as weaker exchange rates, particularly in Brazil, India, South Africa, Argentina and Indonesia, hit the company’s sales in the quarter. In addition, there was no improvement in Europe and North America. The developed markets showed some improvement. Though sales declined 0.3% in the third quarter due to global macroeconomic headwinds, the rate of decline moderated from the year-ago quarter.
Personal Care: The segment posted solid results on the back of strong performances in all its sub-categories. In the Hair section, the company launched Dove Repair Expertise across most of its markets and introduced Toni&Guy into new markets. Hair products like Clear, TRESemme, and Sunsilk also progressed well.
Skin cleansing products growth was driven by Dove, Lifebuoy and Vaseline. Deodorants also grew on the back of strong performance by Dove and Rexona brands. Despite increased competition, the oral business improved owing to its 'Brush Day and Night' campaign and new product launches.
Foods: In this segment, dressings continued to grow while the spreads performance remained negative. Though spreads showed little improvement in the quarter, it was sluggish due to weakness in the market and lower pricing.
Home Care: In this segment, the laundry section grew on the back of increased volumes and the success of premium formats such as liquids. Household care continued to grow driven by Domestos and Cif brands.
Refreshment: Segment performance was mixed in the quarter. In the ice-cream category, sales benefited from good summer weather in northern Europe, offset by weaker performance in southern Europe and particularly in Italy. The Tea category benefited from new launches, which was offset by a product recall in Brazil.
During the third quarter, Unilever completed the sale of its Wish-Bone salad dressing business to Pinnacle Foods Inc for $575 million in cash. The deal was announced on Aug 12. The sale does not include Unilever's facility in Missouri, where the brands are produced. Post-acquisition, the facility will continue to manufacture brands for Pinnacle Foods under a third-party agreement.
Of late, Unilever has been divesting its businesses to focus its resources on the core food portfolio. In Jan 2013, the company sold its Skippy peanut butter business to Austin, Minn.-based producer of branded food and meat, Hormel Foods Corporation (HRL - Free Report) for $700 million in cash. In Aug 2012, ConAgra Foods Inc. (CAG - Free Report) bought Unilever’s Bertolli and P.F. Chang's frozen meals brands for $265 million.
We remain concerned about the uncertain macro-economic environment, particularly in Europe. 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 #3 (Hold).