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What's in the Cards for Unilever (UN) this Earnings Season?

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Unilever NV (UN - Free Report) is set to report third-quarter 2016 results on Oct 13. Last quarter, the company delivered organic sales growth of 4.7% (in local currency).

Let's see how things are shaping up for this announcement.

Factors to Consider

Unilever has been delivering weak results since the past few quarters due to continued slowdown in the emerging markets, which account for about two-thirds of the company’s total revenues. Though emerging markets offer strong long-term growth prospects, they are generally volatile.

Emerging markets grew 7.7% in the second quarter of 2016, lower than the preceding quarter’s growth of 8.3%. Many emerging markets continued to remain weak with currency devaluation pushing up the cost of living and squeezing disposable incomes.

Despite these challenges, Unilever delivered organic sales growth of 4.7% (in local currency), which was toward the upper end of the 3%−5% range expected for the year. This was driven by pricing gain of 2.8% and volume growth of 1.8%. Organic sales growth was same as that of the preceding quarter.

Developed markets grew 0.7% in the quarter as against a 0.3% decline in the preceding quarter with volume growth more than offsetting price deflation in Europe.

In the quarter to be reported, Unilever is likely to benefit from weak commodity prices, which will help improve its operating margins. Also, irrespective of economic conditions, consumption of personal care and hygiene products like soaps are recession proof.

UNILEVER N V Price, Consensus and EPS Surprise


UNILEVER N V Price, Consensus and EPS Surprise | UNILEVER N V Quote

Encouragingly, the company has been relying on deodorants and hair-care products to augment revenues this year, amid waning sales of its margarine and bread spreads. It also added personal care and other consumer brands, including Dermalogica and Kate Somervile, and the Zest soap brands, last year. In fact, the company has entered into many deals recently in order to strengthen its position in home care and personal care products. These acquisitions will strengthen the company’s portfolio and add to its revenues.

Apart from acquisitions, Unilever has also been shedding off assets in its battered food business. The category has been delivering sluggish growth due to lack of innovation and declining demand. Demand has been weak owing to saturated markets in the U.S. – the company’s major revenue source.

Unilever has a Zacks Rank #3 (Hold).

Stocks to Consider

The following stocks in the consumer staples sector are likely to beat earnings this season. That is because these have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3:

Sanderson Farms, Inc. (SAFM - Free Report) with an Earnings ESP of +8.37% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tyson Foods, Inc. (TSN - Free Report) with an Earnings ESP of +8.85% and a Zacks Rank #1.

Ollie's Bargain Outlet Holdings, Inc. (OLLI - Free Report) with an Earnings ESP of +7.14% and a Zacks Rank #2.

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