Stock in Focus: Unilever

Consumer spending in developed markets remains weak, but the launch of new product lines in emerging markets are helping to boost Unilever's profits

Erin Lash, CFA 22 January, 2014 | 3:37PM
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Erratic changes in commodity costs for inputs such as petrochemicals, edible oils, and tea can weigh on Unilever's (ULVR) profitability, and we think increased demand in emerging markets is likely to keep costs elevated over the longer term. Further, consumer spending remains weak, reflecting high levels of unemployment and austerity measures that are constraining growth in Europe; as a result, volume growth could stall if Unilever raises prices and consumers opt for lower-priced value offerings.

Also, several of Unilever's largest competitors such as Procter & Gamble (PG), Colgate (CL), L'Oreal (OR), and Nestle (NESTS) are also on the prowl for share gains, which puts the onus on Unilever to ensure its products win at the shelf with consumers.

This said, we're impressed by Unilever's cash flow generation - £4 billion or 9.5% of sales in fiscal 2012, indicating the firm is benefiting from its efforts to reduce supply chain complexity.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Colgate-Palmolive Co77.06 USD0.00Rating
L'Oreal SA402.30 EUR0.00Rating
Procter & Gamble Co147.47 USD0.00Rating
Unilever PLC3,951.50 GBP0.00Rating

About Author

Erin Lash, CFA  Erin Lash, CFA, is a senior stock analyst with Morningstar.