Unilever Profits Shoot Up 40% - Analyst Blog

Unilever NV (UN) recently reported second-quarter 2010 results. Net income for the quarter spiked 40% to €1,062 million ($1,400.5 million) from the prior-year quarter.

Earnings per share came in at €0.36 (47 cents per ADR) in the quarter, up 33% from the prior-year quarter but well below the Zacks Consensus Estimate of 51 cents. The year-over-year upswing was attributed to pro forma operating profit growth, cut in the restructuring charges, dip in the pension costs, positive currency translation and proceeds from disposals.

Revenue and Margins

Quarterly net sales jumped 12.4% year over year to €11,752 million ($15,497.5 million). Excluding exchange rate translations, acquisitions and divestitures, underlying sales grew 3.6%, primarily driven by a 5.7% growth in volumes and partially offset by a 2.0% decline in price.

In the quarter, underlying operating profit progressed 13% year over year to €1,724 million ($2,273.5 million), while underlying operating margin expanded 10 basis points to 14.7%.

Segment Details

In terms of product segments, Savory, Dressings & Spreads grew 0.5%, while Ice Cream & Beverages as well as Home Care & Other divisions climbed 3.5% and 2.2%, respectively. The Personal Care segment recorded growth of 7.8% attributed to the solid performance of deodorants and hair care products.

In terms of geographic divisions, Asia Africa CEE’s (Asia, Africa, Central and Eastern Europe) underlying revenues advanced 8.2% to €4,673 million ($6,162.3 million) as a result of an 11.5% increase in underlying volumes, fully offsetting 2.9% adverse impact of lower pricing.

Revenue from the Americas climbed 3.9% to €3,859 million ($5,088.9 million) in the quarter, reflecting outperformance by the new products launched. However, revenues from regions in Western Europe sunk 2.2% to €3,220 million ($4,246.3 million) in the quarter, mainly attributed to a dip in volume and lower prices.

Other Financial Updates

Unilever exited the quarter with cash and cash equivalents of €3,105 million ($4,094.6 million) and net debt of €7,563 million ($9,973.4 million).

In the first half of fiscal 2010, the company generated €2,809 million ($3,704.3 million) of cash from operating activities.

Unilever continues to invest in brand enhancement, better in-market execution, innovations, the introduction of new product lines and the expansion of existing lines. However, the company faces tough competition from its rivals such as Procter & Gamble (PG), Kraft Foods (KFT) and Kimberly-Clark (KMB). Also, the slow recovery of the economy, persistently high unemployment rates and lower discretionary spending power affects the long-term growth plans of the company.

Unilever maintains a Zacks #3 Rank, which translates into a short-term Hold recommendation. Our long-term recommendation for the stock remains Neutral.
 
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