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What Does Hourglass Acquisition Mean to Unilever (UL)?

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In an attempt to fortify its position in home care and personal care products, Unilever PLC (UL - Free Report) has been striking many strategic deals over the last few quarters. The company’s latest buyout plan of Hourglass seems to be most interesting one. This is the first luxury color cosmetics brand that is to be added to the company’s portfolio.

On Jun 19, global consumer products giant Unilever announced to acquire Hourglass. The move is in line with its commitment toward innovation and social responsibility. The deal is expected to close in the third quarter of 2017. Hourglass will join brands including Murad, Kate Somerville and REN in Unilever’s Prestige division.

Acquisition Benefits for Unilever

Founded in 2004 by Carisa Janes, Hourglass is known for its breakthrough formulations and technological innovation and luxe packaging. The brand uses active ingredients in complexion products that deliver skin care benefits.

Therefore, the acquisition is likely to provide ample growth opportunities to Unilever which is consistently focusing on product improvement through innovation. The buyout will also place the company in the color cosmetics category which has been witnessing high growth, driven by social media content and diversified professional make-up techniques. We expect the acquisition to strengthen its portfolio and generate substantial revenues.

Notably, this Anglo-Dutch company has undertaken a comprehensive review to return more cash to shareholders as well as indulge in more aggressive cost cuts, as per The Financial Times, after Unilever rejected Kraft Heinz Co.’s (KHC - Free Report) $143 billion surprise offer on Feb 17. The maker of Dove products and Ben & Jerry’s seeks to evaluate options regarding its portfolio, organization, cost structures, balance sheet and use of cash.

Last month, Unilever announced that it is planning to buy the personal-care and home-care brands from Latin American company, Quala. The acquisition will include haircare brands Savital, eGo and Bio-Expert as well as Fortident toothpaste and Aromatel fabric softener and will help the company to expand its footprint in Latin America. These brands are also expected to strengthen its position in shampoos, toothpaste, men’s grooming and fabric conditioners in South America.

Unilever purchased Sir Kensington’s, a New York producer of organic ketchups and condiments in Apr 2017 to complement the Maille mustard brand after a failed takeover bid by Kraft Heinz in February.

Besides acquisition, Unilever is also divesting its underperforming businesses, as per the comprehensive review discussed above. In April, Unilever has reportedly decided to sell its shrinking spreads business, including brands like Flora and Stork butter. Furthermore, the company announced that it would buy back shares, hike dividends, raise cost savings target as well as combine foods and refreshments businesses.

Unilever PLC Price, Consensus and EPS Surprise

 

Unilever PLC Price, Consensus and EPS Surprise | Unilever PLC Quote

Stock Price Movement

A glimpse of Unilever’s stock performance shows that its shares have been rallying since the company rejected Kraft Heinz deal. Since Feb 17, the company’s shares have rallied 28.0%, outperforming the Zacks categorized Soap & Cleaning Materials industry’s gain of 8.9% and the broader Consumer Staples sector’s growth of 5.7%. Notably, the industry is part of the top 8% of the Zacks Classified industries (22 out of the 256).

The company has been trending higher on the back of its recent strategic business reviews, aiming to deliver profits and boost shareholders value amid sluggish growth and increasing competition in the global packaged goods industry.

Unilever has also undertaken a program called Connected 4 Growth to reduce costs, under which individual expenses are reviewed during each accounting period rather than rolled over. Meanwhile, the company continues to struggle with declining volumes in Brazil and a soft economy in Russia. Further, it is witnessing softness in the developed markets in North America and Europe with little signs of recovery. Nevertheless, we expect the company will be able to offset these headwinds with the above-mentioned efforts. Unilever currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Investors interested in food stocks in the industry can consider Aramark (ARMK - Free Report) and B&G Foods, Inc. (BGS - Free Report) as valuable picks.

Aramark and B&G, both carrying a Zacks Rank #2 (Buy), have growth rates of 12.00% and 10.0%, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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