Unilever share price: what to expect from Q1 results
Unilever looks set to report a slow start to the year when it releases its first quarter results. We explain what to watch out.
When is Unilever’s earnings date?
Unilever will release its first quarter (Q1) trading statement on 18 April 2019. It will cover the first three months of 2019.
Unilever results preview: what does the City expect?
The primary goal of Unilever – the maker of household brands including Dove, Persil and Magnum – is improving its margin in-line with its rivals. In an attempt to demonstrate the company’s strength as a standalone business following the collapse of the $143 billion takeover bid from US rival Kraft-Heinz, Unilever’s long-time chief executive Paul Polman set a target to improve the firm’s underlying operating margin to 20% by 2020. Polman may have left earlier this year but his successor, Alan Jope, a Unilever lifer promoted from heading its Beauty & Care division in January, has said he remains committed to the 2020 goals set by his predecessor.
Progress so far has been consistent: Unilever’s margin has risen from 16.4% in 2016 to 17.5% in 2017 and last year came in at 18.4%. However, that is still lagging Kraft-Heinz and other peers Procter & Gamble and Reckitt Benckiser which all have margins above the 20% threshold, the last of which boasts the best profitability with an adjusted operating margin of 26.7%.
According to a company-compiled consensus, Unilever is expected to report a 2.3% year-on-year (YoY) drop in revenue in Q1 to €12.33 billion primarily because of the loss of income from businesses it has sold since, mainly its spreads business that was offloaded to private equity firm KKR for €6.8 billion.
The headline figures will be underlying sales growth and its underlying operating margin. Looking at the consensus figures for the year it is clear there is an expectation for Unilever to get off to a slow start, with underlying sales growth forecast to be 2.8% - below the company’s target to deliver annual growth of between 3%-5%. While the consensus does not provide an estimate for its margin in the first quarter, the figure for the first half (and the fact analysts expect a better Q2 relative to Q1) suggests margins could tighten quarter-on-quarter:
Unilever Q1 2019 results expectations
|Q1 2019 Consensus||Q2 Consensus||H1 Consensus||H2 Consensus||FY Consensus||2018 Result|
|YoY % change||-2.30%||-0.60%||-1.50%||5.60%||1.90%||-5.10%|
|% impact from FX||0.10%||0.70%||0.40%||1.80%||1%||-6.70%|
|% impact from M&A/disposals||-4.70%||-5.30%||-5.10%||0.20%||-2.40%||1.00%|
|Underlying sales growth||2.80%||4.00%||3.40%||3.40%||3.40%||2.90%|
|Underlying operating profit*||€4.99||€4.95||€9.95||€9.36|
|Net underlying profit*||€3.59||€3.56||€7.16||€9.80|
|Underlying Diluted EPR (€)*||€1.29||€1.28||€2.56||€3.48|
*Billions, unless stated
What to watch out for in Unilever’s Q1 results
- Change in guidance and 2020 goals: While many expect the new chief executive officer (CEO) to put his own stamp on the business, Jope has outlined his commitment to continuing the work started by his predecessor. The two main targets are improving the underlying operating margin to 20% by 2020 while delivering annual sales growth of 3%-5%. Profitability is being improved by cutting costs (through its 5-S plan targeting savings in the supply chain) while maintaining sales growth. The company is hoping to save €6 billion by the end of 2019. There is also an expectation that Jope will continue the firm’s zero-based budgeting, when budgets are reset and recalculated every year and not set over longer timeframes. With weak expectations for the first quarter and a possible hiccup on the cards, investors will be keen to hear Unilever remains on track over the longer-term and continuing to accelerate growth and improving profitability. Some have questioned the ability to simultaneously cut costs, grow sales and improve margins and fear the focus on profitability could hurt growth.
- Acquisitions and disposals: Unilever has been repositioning its portfolio of brands (it has over 400 in total) by keeping those with long-term growth prospects and offloading others that don’t fit the bill. The firm has said its acquisition strategy is focused on businesses offering 'natural products' and those with 'purpose-driven brands' and has said the majority of its newly acquired brands are growing by double digits on a yearly basis. For example, Unilever announced in February that it had bought healthy snacking brand Graze and has since completed the purchase of French derma-cosmetic brand Garancia, which boasts products with 'clean and effective formulas'. Beauty & Care, the largest of its three divisions, has been particularly bulked-out through acquisitions over the last two years. Considering Unilever has said the unit is its best-placed for growth some believe Unilever’s new CEO could pursue a much larger, more transformational merger with a beauty and cosmetics giant such as Estee Lauder to propel the business to the next level. However, it is unlikely Jope will look to make such a big move so soon after taking the reins, especially as he needs to rebuild relations with investors after the revolt last year against its plans to simplify its dual-headed legal structure which, if completed, would have seen it drop-out of the FTSE 100.
- Horlicks and expansion in India: The most recent major acquisition, and the last made under Polman’s tenure, was the €3.3 billion purchase of GlaxoSmithKline's consumer nutrition business, with the main prize being the hot malted beverage brand Horlicks in India – a key battleground for emerging market growth among consumer goods businesses. As a brand marketed as a nutritional drink for children in a country with a booming population, Unilever believes Horlicks is well-positioned for the future. Some analysts said competing bids from Coca-Cola and Nestle pushed up the price, which has placed pressure to demonstrate the value of the deal, particularly as GSK has reported slower growth from the division over the past two years. Unilever said it expected to deliver significant synergies from the deal but has not yet outlined them in detail, so investors will be keen to hear an update in the Q1 results.
- Brexit: Jope said in January that Unilever was stocking 'weeks of inventory – not months or days' in preparation for a possible no-deal Brexit but, with the March deadline now gone, investors should look for an update on Brexit and the potential impact on the business. Although, the fact that things are as uncertain as ever will mean it is unlikely Unilever’s stance will have changed much, if at all.
- Dividend: Unilever has grown its annual dividend by an average of 8% per year over the last 38 years and has never made a reduction, so investors can feel pretty confident about the progressive payout continuing. Dividends are paid out in four equal quarterly payments, which last year was 39 cents per NV share and 34 pence per PLC share (for a total of €1.55 and £1.26).
Unilever share price: technical analysis
Unilever has been surging higher of late, with the share price gaining around 11% since the £39.44 low set in late February. This is just the latest in a series of substantial swings in the share price, where both rallies and sell-offs last for weeks to months.
Since 2017, we can see that the smallest move was a 7% drop in February, with prior periods taking on more substantial swings. It is notable that these swings have become increasingly smaller, with price consistently respecting the £43.21-£44.31 resistance zone. We are now back at that key resistance level, with the price clearly finding it difficult to break into a new high.
This highlights the possibility of another substantial reversal for Unilever, with a break through £44.31 required to bring about a bullish continuation signal. Until then, there is a good chance we could see the beginning another leg lower. Watch for a break below £43.22 as a bearish confirmation signal.
How to trade Unilever’s Q1 results
A Thomson Reuters poll of 14 analysts shows there is a long-term Buy recommendation (as of April 8), although there is a large number that believe the stock is adequately priced.
The overall stance on Unilever has become increasingly bearish over recent months, with a number of brokers downgrading their recommendation.
Unilever shares: broker recommendations
|Recommendation||Number of brokers|
Unilever earnings: hiccup is likely but long-term fundamentals are strong
The consensus figures ahead of Q1 results suggest Unilever will have a slow start to the year and there is a chance that the solid progress made to date in delivering growth and improved profitability could hit a blip. However, Unilever is expected to gather pace as the year goes on and if there is no dramatic change to the outlook (or its 2020 goals) then investors should concentrate on the long-term prospects rather than the Q1 results. While Unilever lags its peers in the margin department it also means there is more upside packed in Unilever than its rivals. Unilever shares have risen 12% over the past year, outperforming Reckitt (3.2%) and, more notably, Kraft Heinz which has plunged 46%. However, P&G shares have outperformed all three over the past year and since the start of 2019.
Ultimately, the investment case for Unilever lies in its portfolio of big brands that are positioned for further growth that can generate the cash needed to reinvest in new and existing products, all while growing the dividend. It may have a new CEO and the market may be undergoing dramatic change, but Unilever is better positioned than most to adjust and is likely to continue to deliver the consistent progress investors have become accustomed to.
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