Unilever delivers solid top-line growth
The company's emerging markets focus and personal care products drive results.
Continued growth in emerging markets
In terms of geography, emerging economies drove most of Unilever's growth in prior quarters of 2012. The final quarter was no different with emerging markets clocking up net growth in sales of 10.8%. Both volumes and prices contributed equally, underlying the company's continued dominance in regions such as South Asia and South-East Asia. The company's consistent performance in this area was also reflected in the overall 12-month sales from emerging markets, which was up 11.4% from the previous year.
Meanwhile, the picture in developed markets continued on a subdued note, although the company's performance in the last quarter was much better than it was in previous quarters. Developed markets registered a net sales increase of 4% during the fourth quarter compared to only 1.6% during the 12-month period – a key sign of a resurgence in demand for consumer products in countries such as the U.S. Unilever's aggressive pricing and packaging strategy to displace more expensive competitors such as Procter & Gamble (PG) also seems to be picking up pace in North America and Western Europe considering the general economic weakness in these regions.
Personal care continues to grow
We can see a marked difference in the performance of Unilever's two key divisions -- personal care and foods. While demand in emerging economies is pushing personal care products further, flagging demand in developed economies is bringing down net sales of the foods division.
Personal care, the company's largest segment in terms of sales, generates a major portion of its revenues from emerging markets. The strong growth in demand for products like shampoos and soaps helped the division register a robust underlying sales growth of 11.8% in the fourth quarter of 2012, with the 12-month also finishing in double digits at 10%. Most of this was driven by an increase in volume rather than price and underlines the company's best-in-class sales and distribution channels even in remote, emerging economies. Apart from its deep-rooted channels, performance in this segment was also bulked up by various product introductions over the course of 2012, with new launches under brands like Tresemme, Dove and Lux strengthening the company's portfolio.
Foods, on the other hand, paints a grimmer picture, with an underlying sales decline of 0.1% over the last quarter. This is primarily because a major bulk of sales in this division comes from developed economies where the general economic weakness has led to flagging demand. Net sales did manage to increase by 1.3%, supported by an underlying price increase of 1.4%. Investors will need to wait for a greater uptake of packaged foods, especially spreads, in emerging economies before Unilever sees any real growth here.
Performance in the other divisions, refreshment (comprising of iced teas and ice-creams) and home care (detergents and surface cleaners) was also quite robust, with underlying sales growth of 6.7% and 7.0% respectively. The reasons here were similar to those in personal care -- increased demand from emerging economies fulfilled through deep sales channels and improved product portfolio.
Bottom-line remains steady
Despite Unilever's focus on beating competitors on price in developed economies and the increasing uptake of products in price-sensitive emerging economies, the company's margins seem to be holding steady. Over 2012, the company's overall core operating margin increased by 30 basis points, indicating that its volume growth can be sustained despite pricing pressure.
We will soon update our price estimate of $39 for Unilever based on the latest results.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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