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Unilever Q1 Revenues Decline on Currency Woes, Stock Falls

Shares of Unilever N.V. UN declined 0.40% at the close of the day’s trading on Apr 14 after the company posted first quarter 2016 results.

In the first quarter of 2016, Unilever’s sales declined 2% due to currency headwinds. Currency pulled down sales by 7.1%, offsetting the 0.7% gain from acquisitions.

Unilever delivered organic sales growth of 4.7% (in local currency), which was toward the upper end of the 3% to 5% range expected for the year. This was driven by pricing gain of 2% and volume growth of 2.6%. Organic sales growth was weaker than 4.9% growth recorded in the preceding quarter but better than last year’s growth of 2.8%.

Emerging markets grew 8.3% in the first quarter of 2016, better than the preceding quarter’s growth of 8.1%, with an increased contribution from volume. Many emerging markets continued to remain weak with currency devaluation pushing up the cost of living and squeezing disposable incomes. Encouragingly, Latin America recorded strong volumes and pricing despite difficult macro-economic conditions and lower consumer confidence. However, there was virtually no price growth in Asia and negligible in North America. In Brazil and Argentina, market volumes are contracting as consumers struggle with rising unemployment and high local inflation brought on by currency adjustment. Falling real wages are also holding back demand in commodity exporting countries like Russia, South Africa and in the Gulf. The economies in China, India and Southeast Asia are in a better position but are negatively impacted by weak consumer demand.

Developed markets declined 0.3% in the quarter as against 0.3% growth in the preceding quarter with volume growth offset by widespread price deflation in Europe.

The company witnessed growth in all the categories of Personal Care, Refreshment, Home Care and Foods, with improved volumes and pricing, except volume decline in Foods category.


Overall, we are encouraged by the fact that Unilever is consistently focusing on improving its products through innovation. While the company is introducing new products in some markets, it is re-launching some of its products with improvements in the existing markets.Unilever has also accelerated its cost containment measures to remove unnecessary costs and simplify the business.

However, the company still remains concerned about deteriorating trends in Europe, Brazil and Russia. Consumer demand continues to remain weak. Many emerging markets continue to be volatile, particularly those dependent on oil and other commodity exports and those where currency devaluation is pushing up the cost of living for consumers.

For the year 2016, the company expects currency to impact sales and earnings by 5 to 6 percentage points.

Unilever has a Zacks Rank #2 (Buy).

Some other well positioned players in the consumer staples sector include Church & Dwight Co. Inc. CHD, The Clorox Company CLX and Colgate-Palmolive Co. CL. All of them hold a Zacks Rank #2.

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UNILEVER N V (UN): Free Stock Analysis Report
COLGATE PALMOLI (CL): Free Stock Analysis Report
CHURCH & DWIGHT (CHD): Free Stock Analysis Report
CLOROX CO (CLX): Free Stock Analysis Report
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