This party is a big downer

Breaking down Uniliever's results, we see why so many traders want to throw in the towel.

By Jim Cramer Jul 26, 2012 10:12AM

Sometimes the sheer levels of complexity can stun us and drive us crazy if we let it. Just take the span of a few minutes this morning. Given the internationalization and globalization of just about everything, Thursday’s report from Unilever (UN), one of the three largest packaged goods companies -- 50% food, 50% personal care -- stood out as hugely important.


Things used to be so simple in this business. All we had to do was look at what's known at the model, what people were expecting on the top and bottom lines, compare them to the sales and earnings in the report and make a judgment of whether to buy or sell or trade the stocks.


So at 4:30 a.m. Thursday -- heaven forbid we wait until New York opens -- I am going over them with the television on in the background and see that Unilever beat handily, top and bottom line.


That should be the end. Buy Unilever, right?


It's actually the beginning.


On the surface, we have a picture-perfect quarter led by terrific emerging markets growth of 11%. Astounding vs. Procter (PG) or even Colgate (CL), which had excelled in emerging markets.


But then you have to ask: OK, how was the toxic situation that is Europe? In this case, not bad.


You then have to ask why it wasn't bad. The answer? Only 4% of Unilever is in Southern Europe, the troubled Europe, so they got smart there, as smart as  PepsiCo (PEP) was Wednesday with its light exposure to those countries.


We aren't done, we need the guidance.


Sure enough, it's mixed. Why? Because Europe's getting worse and it is getting worse at a quickening pace, so much worse that it could bring down the emerging markets, where the strength is.


So we can't be sanguine the growth could continue.  


Plus, the raw costs, which include plastics, oil and the actual stuff in the box, are still increasing, in part because of the drought causing crops to go higher and in part because oil, which had been going down and is now going up.  Now we have to worry about the weather, for heaven's sake.


We know that Unilever is taking share because that growth exceeds that of the other players. We also know it is innovating, which is a source of the strength. 


So now we have measured all of the inputs that seem salient: guidance, raw costs, share take, estimates. And we like it so much.


Does that mean buy? In the old days it does because Europe's slow to react and you could get the jump by buying early when New York comes to play.


But then you see how it is doing. It's up 5% already.


And worse, it is up 5% in euros, but the euro is on a spiral down that makes it barely worth owning if you trade in dollars as we do.


Then, at the same time, someone comes on television talking about how the European policy makers are away on holiday at the same time that Greece will no doubt not be able to make its August 20 payment for its bailout loan and Spain's yield curve is staying inverted, signaling that Spain needs more money and Italy has a heavy slate of borrowings that will be hard for the world's third-largest bond market to digest.


So, when you put it all together, you have to think that this might be the peak quarter for Unilever given the guidance, the raw costs could be going up courtesy oil and grains, the emerging markets could be slowing and it trades in a currency that no one wants, particularly the dollar, a currency that could be imploding.


The result? You actually want to SELL Unilever on the pop. That's right, sell it. Sell exactly what you would have bought two years ago at this time before the crisis began.


And that's what makes this business impossible to fathom right now. It's exactly why you can't blame anyone for leaving the party. It's a bad one, no fun, sobering, and, frankly, you can't wait until it's over.



Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions in stocks mentioned.




More from

Jul 26, 2012 4:33PM
Kudos Mr. Cramer.  Absolutely stunning in clarity and far-reaching implications.  A stereoscopic view of our world today, from economics, to politics to morality. 
Jul 26, 2012 4:44PM
Cramer has as many hits and misses as any other economic fortune teller today.  He's not infallible, but sometimes he does see things clearer than others.
Jul 26, 2012 5:18PM

Good article... wonder who the ghost writer was.

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