Unilever Warns On Macro Headwinds Despite Solid Earnings

by Trefis Team
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Unilever Group
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Unilever (NYSE:UL) announced its third quarter earnings on October 25. The company had a solid quarter, with y-o-y underlying sales growth (USG) of 5.9%, driven by robust growth in emerging markets. Net sales grew 10.3%, boosted by a favorable impact of currency movements. However, management tempered expectations, warning of the continued macroeconomic headwinds faced by the company which could hurt growth going forward.

See our full analysis for Unilever

Strong growth in emerging markets

The company continues to see strong growth in the emerging markets, and has once again outpaced rivals Procter & Gamble (NYSE:PG) and Colgate-Palmolive (NYSE:CL) in these regions. Emerging markets now make up 55% of total revenues, compared to 48% in 2008.

The geographic segment which includes Asia, AMET (Africa, Middle East & Turkey) and RUB (Russia, Ukraine & Belarus) represents a significant chunk of the company’s total emerging market operations. The segment reported an impressive y-o-y USG of 10.7%, with volume growth of 6.2% and price increases of 4.3%. Growth was driven by strong performance in countries including India, China, Vietnam, Russia and Indonesia.

In the Americas, results were mixed as underlying sales declined 3.5% in North America despite share gains in Personal Care and Foods, largely due to an overall decline in the markets there. However, this was more than offset by a strong 13.7% USG, driven by Brazil, where volumes grew in the double-digit range, with particularly strong performance in hair, deodorants and dressings.

In Europe, underlying sales grew a modest 0.9%, with 2.1% volume growth partially offset by price declines from increased promotional activity. The company believes that performance here will be hampered going forward due to a deterioration in the economic situation in the region, particularly in Southern Europe. However, product innovation has been strong here, with new launches in various businesses. Further, a shift in strategy, with a larger proportion of sales in the value range, is expected to prevent a major decline in volumes.

Home Care and Personal Care drive growth

The company’s Home Care business segment was the single best performer for the company in terms of sales and volume growth. The segment saw y-o-y USG of 11% this quarter, primarily driven by strong volume growth in laundry and the launch of new products in various regions. The re-launched Dirt is Good brand has performed very well, reaching over 20 markets and driving growth in Brazil, U.K. and France. Fabric conditioners also grew strongly, driven by product innovation and expansion into new markets. The company has regained most of its global market share in Fabric Care and we expect it to continue its upward trend.

Personal Care has been performing very well for a while now, and did not disappoint this quarter, reporting y-o-y USG of 8%. Growth for the segment was driven by hair care, whose brands Clear and Tresemmé performed very well in the U.S. and Brazil respectively. Tresemmé has been a key driver for the company’s hair care segment in Brazil, taking its market share to a new high of 7% in the region. We estimate that Unilever has a global market share of 12.7% in Skin & Hair Care, and project this to grow to around 14% by the end of our forecast period.

We will be updating our $37 price estimate for Unilever based on the earnings release.

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