Can Unilever’s Results Deliver Continued Broadbased Growth?

by Trefis Team
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Unilever Group
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Unilever (NYSE:UL) reported a spectacular earnings last year, with total revenue touching the $68 billion mark, an impressive 10.5% improvement over 2011. Growth was largely broad based, across all markets and categories, with a good balance of price and volume. The emerging markets served a key role by clocking an impressive 11% rise in sales and accounting for almost 55% of the total Unilever’s business. [1]

The underlying sales, which reflects the change in revenue from continuing operations at constant rates of exchange and excluded the effects of acquisitions and disposals, was up 6.9% in 2012 as compared to 6.5% in the previous year. This was well balanced with an underlying volume and price growth of 3.4% and 3.3% respectively. See a detailed analysis of Unilever’s last year results here.

See our full analysis for Unilever

The company will declare its first quarter results Thursday, April 25, and we expect similar outperformance from the company in this quarter too. We estimate the underlying sales to grow by ~5.5% in this quarter over the previous one, backed by underlying prices and volumes to increase by ~2.5% and ~3% respectively.

The company has been able to increase its prices largely due to higher uptake of its premium products like Dove hair range in Philippines, Clear brand in the United States and Magnum ice cream brand across 40 countries. Having said that, we will be eagerly watching the contribution of emerging markets towards the top as well as bottom line for this quarter, as they were the major drivers of growth during the last year.

Widening Reach Across Customer Segments

The company is focusing on a three pronged approach to widen its reach among consumers – encouraging more affluent consumers to use its premium brands, offering value products to lower income consumers and expanding quickly into new geographies like Central Africa and Myanmar, and into emerging segments like male grooming and new channels like e-commerce.

The company expects that by 2020, 1.8 billion more consumers, mainly from emerging markets will become more affluent, and thus expects the market for premium products to grow. Also, the company is aggressively looking at growing inorganically in those regions where it was not present earlier. In 2012, Unilever acquired Kalina, the Russian personal care company, and Alberto Culver, the global hair and skincare company, to foray into new markets. [1]

Home Care And Personal Care Divisions To Drive Growth

Home Care and Personal Care divisions grew ahead of the markets last year, up 10.3% and 10.0% respectively, and they resulted in solid market share gains. These two divisions contributed almost 52% to the total revenues in 2012, up from 50% in the previous year. This was largely because of higher emphasis on laundry and household cleaning category and innovations in the skin care and deodorants category. The company spent almost $1.32 billion on research and development, coupled with $8.83 billion on advertising and promotions to garner market share in these extremely competitive divisions. We expect Home Care and Personal Care divisions to play an important role going ahead. [1]

We will soon update our price estimate of $39 for Unilever based on the latest results.

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Notes:
  1. Annual Report 2012 [] [] []
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