Unilever Q3’16 Preview: Ice Creams and Tea Might Turn Bitter For Unilever

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Unilever (NYSE:UL) will report its Q3’16 earnings on October 13th.  The company has been one of the very few consumer goods companies which have managed to grow revenues since start of this decade. Since 2010, Unilever’s revenues have grown by nearly 3.7% on a compouned basis, whereas most of its competitors like P&G (NYSE:PG) have struggled to maintain a break even mark, in part due to its ongoing divestiture of non-core brands. However, this year growth has slowed for Unilever, as both Q1 and Q2 had seen a year-over-year decline in revenues due to currency effects, especially in emerging markets.  On a constant currency basis, however, second-quarter revenues were up 5.4%.  (Unilever gets around 55% of its revenues from the emerging markets.)

Looking at the historical trends, Unilever usually experiences a sequential decline in revenues in the third quarter due to a seasonal decline in demand for ice cream and cold beverages in autumn months. We expect this trend to evident in the results when the company reports them.  (See the table below.)

UL-pre-earn

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See our complete analysis for Unilever here

Refreshments Pose A Threat To Top-line And Bottom-line

Unilever’s refreshment segment mainly includes ice creams (Ben & Jerry’s, Walls), tea (Lipton) and other beverage brands. The segment comprises of nearly 25% of the company’s revenues, and any decrease in its sales during during the autumn and winter will have an impact on the overall turnover of the company. However in this quarter, in addition to the weather change, there has been an increase in the commodity beverage price index which has gone on to touch its yearly high of 170 (source: indexmundi) . This commodity price increase is likely to affect the margins from the segment making both the top-line and the bottom-line vulnerable.

What To Expect From Rest Of The Segments?

  • Personal care likely performed well due to the company’s premiumization strategy.  In addition, we expect that an improvement in the economic situation in emerging markets fostered purchases of mid to high end products.
  • In Foods, the decline in spreads and margarine market likely continued to offset the growth in cooking ingredients and savory snacks.
  • The Home care segment, with its detergents and dish cleaners,  experiencesnon-seasonal demand throughout the year.  Therefore, the segment is unlikely to produce any surprises in the results.

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