Key Takeaways From Unilever’s Full Year Results

by Trefis Team
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Unilever Group
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Unilever (NYSE:UL) ended its year on a higher note, reporting an acceleration in Q4 sales growth due to strong emerging market performance. Unilever’s turnover increased 2% year-over-year (y-o-y) to €53.7 billion, primarily driven by growth in all categories, excluding spreads. The company’s turnover was negatively impacted by strengthening of the euro. The company’s underlying sales growth of 3%, included a 1% volume growth and 2% pricing increase, with a drag of 40 basis points (bps) from spreads. The company’s gross margin improved by 40 basis points (bps) to 43.1% and its underlying operating margin improved 110 bps to 17.5%, driven by accretive acquisitions as well as progress in the company’s cost-saving programs. Unilever’s diluted earnings per share for the full-year half was up 18% y-o-y at €2.15. In addition, the company’s free cash flow was €600 million higher than the last year at €5.4 billion.

We have created an Interactive 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.

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 second half of the year. On the other hand, Unilever’s performance in developed markets such as North America and Europe continued to disappoint because of mixed conditions. For the full year, the emerging market volume growth was 1.6% and over 4% in the fourth quarter.

Food Division In Focus

Unilever’s food division’s (including spreads) organic sales increased 1% year-over-year with negative volume growth. However, the company reported a 2.2% growth, along with better volumes, after excluding spreads from the results. The company will be selling its spreads business to KKR in a deal that is expected to close in mid-2018. 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.

Going forward, Unilever forecasts underlying sales growth of 3% to 5% for 2018 and an improvement in underlying operating margin and cash flow that will keep it on track for its 2020 targets.

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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