EUR 850.00 For Business Accounts Only

Morningstar | After the Netherlands Relocation Debacle, Unilever Reports in Line 3Q

Unilever is on track to meet our full-year forecasts, with underlying sales growth of 3.8% in the third quarter. On a reported basis, underlying sales have grown by 3% year-to-date, and are down 3.6% on a reported basis (excluding spreads), 40 basis points above our full-year estimates. We are reiterating our wide moat rating, our EUR 52 fair value estimate for the Amsterdam-traded shares, and we have not made any material changes to our cash flow estimates. We believe Unilever offers modest upside to its current market price, although we expect headwinds from several commodities including packaging materials to impact the company in the short term.

The home care segment was the standout this quarter, with 4.5% underlying growth, thanks to relatively strong pricing of 3%. We do not expect that to be sustainable, however, as we regard home care as a particularly competitive category, in which pricing is likely to be challenging in the medium term. In fact, in the broader portfolio, Unilever’s organic growth is still being driven by volumes (up 2.4% in the third quarter) slightly more than price/mix (up 1.4%). We model slightly more volume growth, driven by emerging markets, and slightly less price/mix for Unilever relative to the peer group, and this played out in the third quarter, with Asia/AMET/RUB driving the majority of the sales growth, with regional volumes up 4.3% and price/mix adding an further 2.2%.

Nevertheless, we expect some pricing to come through over the next 18 months, as commodity cost inflation is likely to creep in. Unilever did not provide any details about margins in this trading update, but we expect commodity cost inflation will begin to bite by the end of the year and that Unilever will attempt to pass most of it through.