What To Expect From Unilever’s Q2

by Trefis Team
Unilever Group
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Unilever (NYSE:UL) is scheduled to announce its second quarter results on Thursday, July 19. The company’s turnover declined 5% year-over-year (y-o-y) to €12.6 billion ($15.5 billion) in Q1, as the underlying sales growth of 3.4%, including spreads, was mostly comprised of volume growth. The company’s pricing growth remained low at 0.1%, largely due to the impact of GST in India, strong price-driven competition in Europe and North America, and low commodity inflation overall. The company’s turnover was also significantly impacted by the strengthening of the Euro. In terms of operating segments, the company saw growth in all its divisions – Beauty & Personal Care grew by 3.9% y-o-y, Home Care was up by 4.9% y-o-y, and Foods & Refreshment grew by 3.7% y-o-y.

Our $60 price estimate for Unilever’s stock is almost 10% ahead of the current market price. We have created an Interactive Dashboard for Unilever which outlines our forecasts for the company’s Q2 and full-year fiscal 2018 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation. Going forward, we expect the company to report growth in its revenues on account of continued growth from emerging markets in Q2.

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. In Q1, market conditions improved due to growth in global GDP, of which a majority of growth came from emerging markets (+5.1%). We expect the company to benefit from the improved macro conditions in these economies in the upcoming quarter as well. On the other hand, North America also delivered 2.9% growth, on the back of the timing of some innovations and promotions and strong performance of acquisitions in Q1. However, growth in Europe was flat, which led to overall growth in developed markets of only 1.1% in Q1.

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 $11.9 billion forecast for 2018.

Future Outlook

Going forward, Unilever continues to forecast underlying sales growth of 3% to 5% for 2018 and an improvement to 20% in the underlying operating margin, which will keep it on track for its 2020 targets. 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 adjusted EPS to come in at around $2.61

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