Unilever today (20 January) reported sales that came in below expectations. The company’s top line has been hit by macroeconomic factors, particularly in emerging markets, as well as ongoing category decline in margarine. However, a focus on productivity enabled the group to accelerate margin expansion during a period of higher input costs for raw materials such as dairy and chocolate. The City’s response has been as mixed as Unilever’s performance.
Keith Bowman, Hargreaves Lansdown Stockbrokers
“The news from Unilever is disappointing. Fourth-quarter underlying sales growth is below forecast, with the slowdown in emerging markets again impacting. Final-quarter underlying European sales have fallen, whilst management’s accompanying outlook comments offer little inspiration.
“On the upside, management initiatives such as product innovations and a sharpened business focus continue, whilst a dividend yield of over 3% remains attractive in today’s ongoing low interest rate environment.
“In all, despite having forged something of a recovery in his earlier tenure, sales growth for the chief executive has clearly stalled. A push towards emerging market expansion has hit headwinds, whilst like the world economy, previously flagged recovery in North America may not be enough. For now, analyst consensus opinion currently points towards a weak hold.”
Darren Shirley, Shore Capital
“Whilst Q4 USG [underlying sales growth] was lower than expected, the group has comfortably outperformed at the core margin level, exceeding both Shore Capital and consensus expectations with a 40 basis point increase year-on-year. Driver for the EBIT margin beat was a focus on costs which declined 60bps as a percentage of sales, with the gross margin actually down 20bp yoy, primarily reflecting currency driven cost increases in emerging markets. Spend behind brands and marketing is reported to have been maintained at 14.8%.
“The stock is trading on demanding multiples from a historic perspective with trading, at least through the first couple of quarters of FY2015, expected to be held back by the ongoing weakness across the EU and the dampening sales impact from lower input costs/deflation. However, we also see margins being supported from such lower costs and also the consumer (particularly those in emerging markets which have suffered material currency inflation in recent times) to increasingly feel the benefit from the lower oil price in the medium term, leading to more robust volume outlook through the year.”
Andrew Wood, Sanford C. Bernstein
“Overall the results were mixed. Q4 was below expectations on organic top-line growth (+2.1% vs. our +2.8% and consensus +2.6%) which was at the same level as the disappointing Q3. China saw another -20% quarter given the fallout of the trade loading early in 2014… Furthermore, volumes were negative and well below expectations (-0.4% vs. our/consensus +0.8%). However, Unilever was well ahead of expectations on H2 margins (+85bps vs. our +40bps and consensus +30bps) and ahead on H2 EPS growth (+2% vs. our +3% and consensus flat). This is now the third consecutive semester of a beat to consensus EPS expectation and Unilever is clearly trying to compensate for weak sales growth (driven largely by weak markets…which management believe grew +2.5%) with much stronger margin and EPS growth. That should be rewarded.
“Guidance for 2015 was for no improvement in the markets and that Unilever remains “focused on competitive, profitable, consistent and responsible growth”. This should lead to broadly similar results to 2014 …. With positive FX impacts in 2015 we should see strong double-digit EPS growth (we currently expect +14%). We consider that this guidance is OK for a starting point…it would be rash to be less cautious so soon in the year.”
Richard Withagen, Kepler Cheuvreux
“Q4 2014 underlying sales growth amounted to 2.1% compared to consensus of 2.6% with volume growth turning negative in the quarter, driven by personal care (China destocking) and Foods. FY2014 underlying sales growth at 2.9% was just below consensus of 3.1%, with volumes slower than expected.
“A solid margin performance. Operating margins were in line with our forecast, but below consensus. Unilever’s gross margin was down 20bps, which is disappointing and driven by currency-related cost increases in emerging markets. This was offset by cost savings, which added 60bps. Marketing spending in 2014 was at the same level as in 2013. Core EPS amounted to EUR1.61 in 2014 compared to consensus of EUR1.59.
“A slow start to 2015. Management expects market conditions in 2015 to be similar to last year and a performance also in line with last year. This is disappointing from a top-line perspective, as consensus expects Unilever to grow sales by 3.7% in 2015 on an underlying basis, which we now expect to come down. On the other hand, there is probably room for margin expectations to be increased. Unilever added that Q1 2015 would be soft and expects growth to increase during 2015.”
Click here to view our news coverage of Unilever’s full-year results and check back for further analysis following Unilever’s conference call.