Bloomberg News

Unilever Hits Record After Sales Growth Tops Expectations

January 23, 2013

Unilever (UNA), the world’s second-largest consumer-goods maker, hit a record after the company reported revenue growth that beat estimates for a third straight quarter, led by gains in North and South America and demand for personal- care products.

The shares rose as much as 3 percent to 30.19 euros in Amsterdam trading. Sales excluding acquisitions and currency shifts rose 7.8 percent in the three months to Dec. 31, London- and Rotterdam-based Unilever said today, exceeding the 6.2 percent average estimate of 13 analysts polled by Bloomberg. The quantity of goods sold gained 4.8 percent, more than the 4 percent estimated by analysts and the biggest quarterly gain in two years.

“It was an excellent quarter for Unilever, continuing its run of high-quality, consistently strong performance,” Andrew Wood, an analyst at Sanford C. Bernstein, said in a note. “While the lack of growth in foods and Europe remains a worry, the overall performance remains impressive.”

Sales growth of 12 percent in the Americas, which represent a third of the company’s 51.3 billion euros ($68.4 billion) in annual revenue, was more than double the estimate of analysts such as Alain-Sebastian Oberhuber at MainFirst Schweiz AG. The Anglo-Dutch company has been pushing brands including Magnum ice cream in emerging markets such as Indonesia and Brazil to offset slowing growth in other regions.

Unilever’s results put pressure on Danone (BN) and Nestle SA (NESN), which are both scheduled to report full-year results next month. The maker of Knorr soups said today it expects “difficult” economic conditions to persist this year.

Emerging Markets

The shares were up 2.8 percent at 30.15 euros as of 2:52 p.m. in Amsterdam after hitting 30.19 euros a share earlier. That’s the highest price since at least 1989. Nestle gained 0.6 percent to 63.35 Swiss francs in Zurich and Danone added 0.9 percent to 50.99 euros in Paris.

Fourth-quarter sales in North America rose at a “mid single-digit” pace, Unilever said, helped by a systems implementation that brought sales forward into the third quarter of last year. Even adjusting for that easier comparison, sales in the region were “strong” and largely drove the beat, said Dirk Van Vlaanderen, an analyst at Jefferies International.

U.S. sales growth was fueled by Magnum and the introduction of Clear anti-dandruff shampoo, the company said.

“At a macro level, there are some signs the U.S. is slightly picking up,” Chief Executive Officer Paul Polman said at a meeting with analysts in London today.

In Latin America, fourth-quarter revenue rose 12 percent, driven by gains in Argentina and Brazil.

CEO’s Spacesuit

Sales in Europe, which represent 27 percent of its business, increased 0.2 percent. In an interview last month, Polman said the region is facing “at least 10 years of slow economic growth,” and today Unilever said developed markets remained “subdued,” growing 1.6 percent in the year. The company has offered lower-priced products in Greece to meet the needs of cash-strapped consumers.

A Unilever spokeswoman said the company had no immediate comment on U.K. Prime Minister David Cameron’s pledge to hold a referendum on whether Britain should leave the European Union.

Personal-care sales rose 12 percent, fueled by shampoo and skincare products such as Dove Damage Therapy and Dove Nutrium Moisture. Operating margins in the business eased 0.5 percentage point last year as the company put more advertising spending behind brands like Sunsilk and Dove Men+Care.

Polman, who donned a spacesuit for the analyst meeting to promote the company’s new Axe Apollo deodorant, said it would be tough to maintain sales growth at a pace of more than 10 percent in personal-care, the company’s largest business with 18.1 billion euros in annual sales.

Pruning Food

Unilever has been pruning its food business -- now 28 percent of sales and skewed toward developed markets -- to focus on faster-growing health and beauty products. Polman said he had expected a better performance in food, where shipments declined for the second straight year, hurt by “weak” sales of spreads.

The CEO said he’s seeking to sell businesses with annual revenue of as much as 750 million euros as they have become “a distraction” and are not easily expanded globally. That would follow this month’s agreement to sell Skippy peanut butter to Hormel Foods Corp. (HRL:US) for $700 million.

“Foods continues to fall in importance,” Liberum Research analyst Pablo Zuanic said in a note.

Full-year revenue increased 11 percent. Unilever has a goal to reach 80 billion euros in sales by 2020 and Polman said today that more than 90 percent of the growth will come from emerging markets.

Cash Flow

Unilever’s free cash flow rose 39 percent to 4.33 billion euros last year, the most since 1999, according to data compiled by Bloomberg. Chief Financial Officer Jean-Marc Huet said the company had no plans to use the cash to buy back shares, and said Unilever will continue to look for “bolt-on” acquisitions between 1 billion and 2 billion euros in size.

A larger purchase than that would be “fine as long as it’s not distracting,” Huet said.

The company’s so-called core operating profit margin widened 0.3 percentage point to 13.8 percent, helped by lower restructuring costs.

Raw-ingredient expenses for commodities such as edible oils will rise at a “low- to mid-single digit” pace this year, a decline from last year’s high-single digit increase which amounted to an additional 1.5 billion euros, Huet said. Commodity prices remain “volatile,” he said on the call.

Net income in 2012 rose 5.4 percent to 4.48 billion euros, beating the 4.38 billion-euro average estimate of 21 analysts compiled by Bloomberg.

To contact the reporter on this story: Matthew Boyle in London at mboyle20@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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