What To Expect From Unilever’s Q4 Results

by Trefis Team
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Trefis
UL
Unilever Group
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Unilever (NYSE:UL) is scheduled to announce its fourth quarter results on Thursday, February 1. The company has had a better-than-expected 2017 so far, with growth in both organic sales and net sales. In the first nine months of 2017, the company’s organic growth of 2.8% was led by underlying price growth (UPG) of 2.8% and flat volumes. During this period, Unilever’s turnover increased 3% year-over-year (y-o-y), primarily driven by growth across categories. The company’s overall growth is fairly impressive given the tough market conditions in some international markets. We have created an Interacxtive Dashboard which outlines our forecasts for the company. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

Food Division In Focus

Food is the second largest contributor to Unilever’s revenues, accounting for almost 23% of its total valuation, per our estimates. However, the division has been facing some heat for a while now, due to the underperforming spreads business and slow economic growth in certain geographies. Accordingly, the company announced that it was selling its spreads business to KKR in a deal that is expected to close in mid-2018. In the first nine months of fiscal 2017, the company’s food division (including spreads) saw organic sales growth of 0.9% year-over-year with negative volume growth. However, the company reported 2.2% growth, along with better volumes, after excluding spreads from the results.

Refreshments Business: Growth Driver

Unilever’s Refreshments business includes brands such as Lipton and Ben & Jerry’s. The segment contributes close to 20% of the company’s total revenues and accounts for 18% of its value, per Trefis estimates. Unilever is the leader in the global ice cream market and accounts for 22% of the total market. There has been solid growth in luxury products such as gelato and dairy-free products made with soy milk, for instance, which helped Unilever’s Refreshments business grow of late. Factors such as growth in premium products and growing consumption in emerging markets (India and China) could help the company pick up its growth in this segment going forward. Accordingly, we expect the segment to become Unilever’s fastest-growing business and reach nearly $14 billion in revenues by 2020, up from an $11.4 billion forecast for 2017.

Emerging Markets Lead The Way

Emerging markets play a vital role in Unilever’s business, as almost 55% of its total revenues come from these markets. Market conditions remained somewhat challenging in the first half of 2017, driven by virtually flat volumes, driven by economic conditions in Brazil and weak trade stock levels due to the implementation of the Goods and Services Tax (GST) in India. However, the macro conditions in these economies improved in the third quarter. On the other hand, Unilever’s performance in developed markets such as North America and Europe continued to disappoint because of mixed conditions.

Future Outlook

For the full year, Unilever expects its underlying sales growth to be in the range of 3% to 5%, along with an improvement in the underlying operating margin of at least 100 basis points. The company is expected to benefit from its ‘Connected 4 Growth’ initiative, which includes supply chain simplification, innovation, and cost-saving initiatives. Going forward, the company expects increased investment in brands and marketing, which could help grow volumes in the Personal Care segment. We expect the company’s full-year GAAP EPS to come in at around $2.40.

Our $54 price estimate for Unilever’s stock is slightly lower than the current market price.

See our complete analysis for Unilever here

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