Unilever Earnings Review: Growth Slows Down But Restructuring Benefits To Reflect In 2017

The leading consumer products manufacturer, Unilever (NYSE:UL) reported its fiscal 2016 earnings on January 26th. The company’s constant currency growth slowed down both in Q4 and for the full year 2016. Considering the currency effects, the annual turnover fell by 1%. This was primarily because of tough market conditions throughout the world, especially the economic crises in Brazil.  Also contributing was the demonetization in India under which 500 and 1000 rupee notes were removed from circulation.  This led to a major hit on the cash economy of the country. However, Uniliver continued to show an improvement in the bottom line, which was led by margin-accretive innovations, synergies from the premium brand acquisitions, and the benefits from ‘Zero Based Budgeting’ cost saving initiative. This was despite the restructuring costs incurred related to the implementation of ‘Connected 4 Growth’ strategy. The free cash flow too increased due to reduction in working capital and capital expenditures.

The key takeaway from Unilever earnings were that Unilever’s restructuring in the form of Connected 4 Growth, which includes zero based budgeting has started to reap results.  The company expects more benefits from these organizational changes in 2017. This is likely to be backed by the inputs from new brand acquisitions.

Going forward the Uniliver expects a lukewarm first half of 2017 followed by improvements in the second half, mainly because of the continuing challenges in the world economy, especially in the emerging nations.

See our complete analysis for Unilever here

Amidst Uncertain Market Conditions, Unilever Plans To Take Advantage Of Restructuring And Efficiency Improvement In 2017

• Connected 4 Growth (C4G) is a restructuring initiative under which Unilever is planning to increase its penetration in the fast growing categories and markets, evolve its portfolio through acquisitions and develop more channels (like Amazon and TaoBao) to sell its products.
• Though the company expects the restructuring charges from C4G to continue to rise in the first half of 2017, it is worth noting that once this restructuring is complete, it is likely to add significant savings in the subsequent quarters.
• Zero Based Budgeting, which focuses on improving costs by reconsidering all the expenses incurred in every financial reporting period, has already started to show the benefits as it led to a 50 basis point improvement in the company’s operating margins.
• Restructuring and organizational changes have helped Unilever’s competitor P&G to curb the fall in its net sales, and beat the analysts earnings estimates. Similarly Kimberly Clark’s bottom line too has benefited from its FORCE cost cutting initiative, despite a decrease in its sales.
• In addition, the brand acquisitions made by Uniliver in 2015 and 2016 contributed 0.6% in the underlying sales growth. As Unilever derives over 55% of its sales from the emerging markets, which have been quite volatile over the past year or so, it is likely that Unilever will increase its dependence on acquisitions and restructuring to report growth in its top line and bottom line.

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