What the analysts say - City sees signs of hope in Unilever's spreads
Unilever said it was gaining share in spreads markets in North America and Europe
Unilever today (24 April) reported first-quarter underlying sales ahead of the market's expectations. Shares in the consumer goods giant closed down, perhaps amid concerns foreign exchange would have on the company's top line. However, drilling down into the results, the City found reasons to be positive about Unilever's ice cream - and recently maligned - spreads businesses.
"The timing of Easter has impacted on US food sales, margarine appears to remain broadly out of favour with consumers, whilst ongoing investigations by a number of national competition authorities provide a further point of concern. On the upside, management initiatives including product innovation and the rejigging of the group's business portfolio are ongoing, while cost containment and selective price rises to offset commodity cost increases are also playing their part" - Keith Bowman, equity analyst, Hargreaves Lansdown Stockbrokers.
"The Q1 was a modest beat on organic growth. Highlights for us were strong volumes in Europe, reflecting market share gains and early signs of a revival in Spreads. But the big picture is one of still-slow grinding, in both developed and emerging markets. The big positive surprise relative to our forecasts was Europe, where volumes rose by 1.1%, despite a c.100bps headwind from the later Easter. This looks to have reflected increases in market share in ice cream, personal care and home care. Early signs of market share gains in spreads (margarine) should reassure the market. And with Unilever now having famously lost their virginity on 'Melange' (margarine/butter combination, the growth segment), although thus far only in Germany, there is suddenly more opportunity to go for" - Martin Deboo, Jefferies.
"A small surprise/disappointment was personal care - just 4.5% organic growth -which is well below expectations and the levels delivered in last two to three years. Competition appears to be quite fierce in this area. But refreshment (+5.9%) was a pleasant surprise. The Easter impact on foods was well flagged, and should allow a nice recovery of growth in Q2…with increased pricing driving Q3 and Q4 growth across all businesses. Also of note was the formal announcement of a strategic review (which we believe will eventually lead to the sale) of Slim.Fast and North American pasta sauces. This is a positive move in-line with our thesis that Unilever is slowing moving away from food and towards home and personal care. Sustained good underlying operating momentum and continued progress on Unilever's transformation to becoming an HPC company should be positive for the stock" - Andrew Wood, senior research analyst, European food & HPC, Sanford Bernstein.
"We think the statement reads reasonably positively, with Unilever continuing to take market share overall, Refreshments seeing a pleasingly strong start to the year and market share gains now being made in margarine in Europe and North America. Refreshments saw a very pleasing acceleration to 5.9% growth driven by ice cream in Brazil and Australia and a very good start to the season in Europe. Food, impacted to the late Easter, saw sales fall by 1.7%, but this is slightly better than we had expected, and it is good to see Unilever now taking market share in margarine in both Europe and North America after several years of under-performance" - Graham Jones, executive director, Panmure Gordon Stockbrokers.
"Unilever has reported Q1 trading a little ahead of muted expectations, with underlying sales growth reported at 3.6%. We suggest the performance is a little ahead of management's cautious guidance, provided at the FY2013 results for Q1 trade at the lower end of a 3-5% growth range. On a category basis we highlight the strong performance from refreshment and home care and the continued slowdown from personal care, albeit from arguably unsustainable levels. Food remains disappointing at -1.7% underlying sales growth, though a Q2 improvement is anticipated due to the timing of Easter" - Darren Shirley, Shore Capital
Shares in Unilever closed down 1.67% at 2590p.
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