What To Expect From Unilever in Fiscal 2019

UL: Unilever logo

Unilever‘s (NYSE: UL) turnover revenues decreased 5% year-over-year (y-o-y) in its full-year 2018 results, primarily due to a negative currency impact of 6.7% and a net impact from the disposal of the spreads business to KKR. The company’s organic growth (excluding spreads) of 3.1% was mostly comprised of volume growth of 2.1% and pricing growth of 1.0%. It should be noted that hyperinflation in Argentina has had a severe impact on consumer purchasing power, and was excluded from underlying sales growth from July. Overall, the company reported improvement across its major business divisions and benefited from strong volume growth in some emerging markets. Almost 60% of the company’s total revenues come from emerging markets.

Our $55 price estimate for Unilever’s stock is slightly ahead of the current market price. We have created an interactive dashboard on A Closer Look At Unilever’s 2019 which outlines our forecasts for the company. In this dashboard, we have estimated the company’s full-year fiscal 2019 results (in U.S. dollars). You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

Full-Year 2019 Outlook

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Going forward, Unilever expects its full-year underlying sales growth to be at the bottom end of its range of 3% to 5% for 2019, reflecting some volatility in emerging markets, notably in Latin America. However, the company expects an improvement in the underlying operating margin to 20%, which will keep it on track for its 2020 targets. At present, the company’s underlying operating margin has already improved to 18.4% from 16.4% in 2016. Overall, we expect Unilever to generate around $61 billion in revenues in 2019, and adjusted earnings of almost $10 billion. Of the total expected revenues in 2019, we estimate $24.9 billion in the Foods & Refreshment business, nearly $23.5 billion for the Personal Care segment, and almost $12.2 billion in the Home Care business. Further, 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. However, cost pressures in areas such as packaging and transport could lead to a decline in the bottom line in fiscal 2019.

Unilever’s Personal Care segment’s revenue contribution has grown from 33% to 39% over the last six years. More recently, Unilever named the expansion of the segment through acquisitions as one of its top priorities. Some of the recent acquisitions in the space include Quala, Carver Korea, Sundial, Schmidt’s Naturals, and Equilibra. Such key strategic acquisitions will ensure that this segment remains a key growth driver going forward. In addition, the company also combined its Foods and Refreshments businesses after divesting its Spreads business recently.

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