Here’s what the City thinks of the fourth quarter/full year results.
At pixel time, shares in Unilever were 8p higher at £18.66.
Volumes held up much better in Q4 than expected despite a very challenging comp. Pleasing to see market shares up in all regions which demonstrates that Unilever are holding their own despite v tough competition. Pricing was a bit lower but we are not concerned because Q4 in quarter pricing was up and they have some very easy pricing comps in 2011. Bears will focus on the low quality margin delivery with A&P down (-170bps). The lower A&P reflects very tough comps (+240bps in Q409) plus a move to increase trade promos.
So Bulls will focus on vols, bears on margins & A&P. Our view is that given all of the gloom surrounding this quarter this is not a bad result. However there is no comment on the 2011 input cost outlook. This will be key for the shares post the meeting. We are a Buyer of the stock with a £21.50 on the PLC & €25 on the NV. See attached spreadsheet which shows the actuals vs consensys
Top line of 5.1% (all volume) was well above market and our estimates, and the company reaffirmed guidance for margin expansion and “profitable volume growth” for 2011. In the context of the stock’s under performance in the last 30 days, we find all this quite encouraging. Unilever will start reporting margins every six months next year vs. quarterly now; timing issues explained above expectations margins in 3Q and the opposite played out in 4Q (so we would not harp on the 20bp 4Q yoy drop in EBIT margins and -170bp in A&P; see below).
For the stock to do well in 2011, three issues have to work:
1) the company’s cost savings potential (after years of profit margin under performance) should allow for partial offsets of cost inflation;
2) pricing has to firm up; given this was flat yoy in 4Q and up sequentially, we think positive pricing is a realistic expectation for 2011;
3) volume growth should remain the in the mid single digits in 2011 but now without the benefit of price cuts (2010 vol +5.8% and price -1.6%) to prove the record volume growth of 2010 was more “change” related than price cuts related (and again 4Q is an encouraging harbinger given 5.1% volume growth on flat pricing).
The headline figure of 5.1% underlying sales growth for Q4 is ahead of both our forecast and consensus of 3.9%. Volume growth of 5.1% is stronger than consensus expected (on 3.8% for Q4), though pricing was a bit weaker with flat pricing achieved in the quarter vs consensus of 0.4%.
Underlying margin expansion of -20bps in the quarter is in line with our forecast, but slightly below consensus of 0bps. A&P was down 170bps in the quarter: though management’s guidance at the H1 results was that A&P would be flat in H2 in absolute terms (and hence down as a % of sales), this is a larger decline than expected and may temper enthusiasm.
Crucially, the outlook statement does indeed raise the issues of competition and commodity cost volatility as expected, but it is reassuring in its confidence to deliver profitable volume growth.
Clearly, input cost rises added to pricing momentum in Q4. While the 20bp gain in underlying operating margins is clearly positive, there was a benefit of a 170bp reduction in overall A&P spending in Q4 as a portion of sales. As long as the company is more focused on promotional spending, as alluded to in the commentary, this is not a cause for concern. All categories accelerated, apart from personal care in Q4. All three geographical regions accelerated sales growth.
Pricing was less negative than in the previous three quarters in both the Asia Africa CEE division and in Western Europe. The Americas returned positive pricing.
EPS benefited from a lower tax charge and, at €1.46, beat the market‟s €1.44 expectations for the full year and our own €1.42. Unilever‟s recent share-price weakness puts the stock on 13.9x 2011E, based on our current estimate, which looks undemanding. The share price should increase today, in our view. ADD.
So, Markets Live rabble, there’s absolutely no excuse to appear uninformed before our special guest.