Currency Tailwinds Help Unilever Post Strong Q1 Results
Global consumer processed goods giant Unilever (NYSE: UL) announced strong 2015 first quarter results on April 17th. First quarter revenues expanded by 12.3% on currency tailwinds of over 10% percentage points. [1] Unilever’s performance was hammered in 2014 by adverse currency volatility in the emerging markets. Now, the gradual recovery of some emerging market currencies has resulted in significant revenue growth in the first quarter of 2015, compared to the same period previous year.
Underlying (non-GAAP) sales growth of 2.8% was driven by price hikes, while volume growth remained moderate as expected. Total first quarter revenues stood at €12.8 billion, which is notably better than the consensus estimate of €12.4 billion. (Read: Price Hikes and Currency Tailwinds to Drive Unilever’s Growth in Q1) The company did not report profits and EPS in the first quarter.
We have a price estimate of $40 for Unilever, which is about 10% lower than its current market price.
See our complete analysis for Unilever here
Price Hikes Continue to Drive Topline Growth
As in the case of the last few quarters, revenue growth in the first quarter of 2015 was again driven by price hikes rather than volume expansion. Volume growth contributed only 0.9 percentage points to the underlying sales growth of 2.8%, while increased pricing comprised the rest. Price hikes were highest in the Personal Care and Refreshments segments, with 2.6% underlying price growth in each.
The sole exception to this trend was the Foods business, which witnessed growth of 3.0% in volumes. In contrast, prices in the Foods business fell by 0.1%. The volume expansion in the Foods business is attributed to strong sales in the run up to Easter. It was further helped along by the success of cooking ingredients in emerging markets and soups in Europe. The flailing spreads business also witnessed some relief thanks to Easter sales. It is pertinent to note that brand disposals had a negative impact of 5.4% on the Foods business. Thus, non-GAAP revenues may have also benefited from the sale of underperforming brands during the quarter.
Home Care Segment Leads The Way
Unilever’s Home Care business continued to lead the way with 3.1% underlying sales growth in the first quarter. Increased pricing contributed 2.3% to underlying sales growth, while volume expansion was 0.8%. In GAAP terms, the segment’s revenues expanded by a commendable 16.8% year on year. However, the bulk of it was due to the 12.3 percentage point positive impact of favorable currency movements. With revenues of €2.5 billion, the Home Care segment accounted for about 20% of the company’s total revenues.
Unilever hinted that higher pricing of its laundry products may have tempered their volume growth in the first quarter. Further, the launch of new premium laundry products may have contributed to the tilt towards higher prices rather than higher volumes in the first quarter.
Volumes Sluggish in Personal Care Business
The Personal Care business is Unilever’s largest business segment. It had revenues of €4.8 billion in the first quarter of 2015, accounting for over 37% of the company’s total revenues. However, volumes remained sluggish in the Personal Care segment and expanded by a marginal 0.1%. The underlying sales growth of 2.7% was achieved predominantly due to price hikes.
The company expects volumes to pick up in the second half of 2015, thanks to a slew of new additions lined up to the Personal Care product pipeline. GAAP revenues may also benefit slightly from Unilever’s recent acquisitions in the personal care space.
Asia Offers Hope
Unilever’s revenues from the Asia, AMET (Africa, Middle East and Turkey) and RUB (Russia, Ukraine and Belarus) region stood at €5.5 billion in the first quarter, which is over 40% of its total revenues. Volume expansion as well as price hikes contributed almost equally to the 3.3% underlying sales growth in emerging markets, although the impact of price hikes was slightly higher at 1.8 percentage points. The culmination of de-stocking measures in China facilitated an improvement in performance in the country.
Revenues from Europe declined amid a fall in pricing of 1.9 percentage points due to deflationary conditions in the region. The Americas region was a mixed bag, as volumes declined slightly but prices increased significantly during the first quarter. Consequently, the 5.9 percentage point impact of higher prices more than offset the 0.4% volume contraction, leading to positive underlying sales growth in the region.
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