This fast-moving consumer products giant Unilever plc (UL) reported first-quarter 2014 results yesterday and recorded revenues of Euro 11.4 billion (*$15.6 billion). Revenues declined 6.3% year over year (in local currency), hurt by a negative currency impact of 8.9%. This was largely due to the devaluations that took place in the second half of 2013, particularly in Brazil, Argentina, Indonesia, as well as India. A stronger Euro also led to the decline. Revenues also lagged the Zacks Consensus Estimate of $16.1 billion.
The company delivered organic sales growth of 3.6% (in local currency) in the first quarter of 2014, driven by organic volume and pricing gains of 1.9% and 1.6%, respectively. However, a late Easter impacted sales by 50 basis points. Organic sales growth was lower than the 4.1% rise recorded in the fourth quarter of 2013.
The company said that the pace of its sales growth has continued to slow down since the fourth quarter of 2013, mainly due to its operations in emerging markets, which account for two-third of its revenues. The company’s organic sales increased 6.6% (in local currency) in the emerging markets in the first quarter compared with the 8.4% growth in the preceding quarter as a result of economic uncertainty and a stronger Euro. South Asia and South East Asia sales were impacted the most, whereas Latin America and China performed better.
Developed markets also remained weak in the first quarter, with softness in North America. However, there were some signs of improvement in southern Europe.
Though the company’s sales are pressurized by macroeconomic headwinds, Unilever is consistently focusing on improving its products through innovation in all the categories. Apart from introducing new products in some markets, it is also re-launching its products with improvements in the existing markets.
Personal Care: The segment delivered organic sales growth of 4.5% (in local currency) in the first quarter of 2014, driven by organic volume and pricing gains of 2.7% and 1.8%, respectively. A strong innovation program helped deliver impressive performance in the quarter. In the Hair section, the company benefited from global brands like Dove and TRESemme. The company also launched dry shampoos under the Elidor brand in Turkey. The skin cleansing category got a boost from Lux and Dove Nutrium Moisture shower gels.
Deodorants grew, supported by the success of compressed aerosol format extended to new markets in Europe and the launch of premium Advanced Care range for Dove in the United States. In the oral care category, the company launched the Signal White Now Men toothpaste, specifically designed for men.
Foods: The segment saw organic sales decline of 1.7% (in local currency) in the first quarter of 2014, due to 2% decline in organic volumes, offsetting the pricing gains of 0.3%. Overall, the segment remained weak due to a late Easter in 2014, which impacted sales of the segment by 170 basis points. In this segment, dressings remained stable while savory growth was driven by Knorr cooking products and the introduction of Knorr Flavour Pots in the UK. However, spreads continued to perform weakly due to a declining trend in margarine markets. Nevertheless, the company is expected to gain market share in margarine in both Europe and North America.
Home Care: The segment delivered organic sales growth of 7.4% (in local currency) in the first quarter of 2014, driven by organic volume and pricing gains of 4.8% and 2.5%, respectively. In this segment, underlying sales grew on the back of increased volumes and significant innovations. The laundry section performed well with the recent launch of concentrated liquids and powder detergents. Household care continued to grow driven by Domestos, Sun Ultimate and Cif brands.
Refreshment: The segment delivered organic sales growth of 5.9% (in local currency) in the first quarter of 2014, driven by organic volume and pricing gains of 3.6% and 2.2%, respectively. Refreshment sales improved in the quarter due to solid a ice-cream innovation program led by brands like Magnum, Klondike Kandy bars, Breyers Gelato, Carte D'Or Artisanal and Cornetto. Tea continued to grow driven by Lipton K-cups and the launch of fruit, herbal and green teas by PG Tips.
Though Unilever is quite optimistic about its strong innovation and cost savings programs, the company anticipates the volatility in the external environment to persist in 2014. In addition, the company expects low- to mid-single-digit commodity cost inflation in 2014, largely due to the effect of weaker currencies. Unilever holds a Zacks Rank #2 (Buy).
Other players worth considering in the consumer staples sector include McCormick & Co., Inc (MKC), Treehouse Foods Inc. (THS) and Mondelez International, Inc. (MDLZ), all of them holding a Zacks Rank #2.
*1 Euro= $1.37048 for the quarter ending Mar 31, 2014.