Unilever PLC's UL share price fell nearly 1% on Nov 25, after the Anglo-Dutch consumer giant received an "adverse judgement" from Brazilian Judicial court in relation to an indirect tax case. As a result, Unilever has decided to pay judicial deposit of approximately €590 million (£504 million), which will be recognized as a non-current financial asset. Hence, no impact is expected on the company’s reported free cash flow.
Unilever intends to appeal this ruling at the Brazilian Supreme Court, believing it has a strong case. The company had been warned about the Brazilian tax case in October.
Last month, Unilever posted weak third-quarter 2016 results. In the reported quarter, its sales dipped 0.1% mainly due to currency headwinds and weak economic conditions in a number of countries. On a constant currency basis, sales increased 3.4% in the quarter.
Unilever delivered organic sales growth of 3.2% (in local currency), which was toward the lower end of the 3%−5% range expected for the year. Higher pricing of 3.6% offset the volume decline of 0.4%. Organic sales growth was lower than 4.7% growth in the preceding quarter.
Emerging markets grew 5.6% in the third quarter of 2016, weaker than 7.7% growth in the second quarter and 8.3% in the first quarter. Developed markets remained flat in the quarter as against 0.7% growth in the preceding quarter owing to weak volume growth and price deflation in Europe.
Overall, we are encouraged by the fact that Unilever is consistently focusing on product improvement through innovation. The company has also accelerated its cost containment measures to remove unnecessary costs and simplify the business.
Unilever has been relying on deodorants and hair-care products to augment revenues this year, amid waning sales of its margarine and bread spreads. In fact, the company entered into many deals recently in order to fortify its position in home care and personal care products. These acquisitions will strengthen its portfolio and add to revenues.
Apart from acquisitions, Unilever has also been shedding off assets in its battered food business. The company still remains concerned about deteriorating trends in Europe, Brazil and Russia. Weakness in consumer demand persists. Many emerging markets continue to be volatile, particularly those dependent on oil and other commodity exports, and where currency devaluation is pushing up the cost of living for consumers.
Unilever currently has a Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Some better-ranked stocks in the food industry include General Mills, Inc. GIS, Ingredion, Inc. INGR and Lancaster Colony Corporation LANC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
General Mills has an average positive earnings surprise of 4.37% in the trailing four quarters. It also has a long-term earnings growth rate of 8.18%.
While Ingredion has a long-term earnings growth rate of 11.00%, Lancaster Colony has a growth rate of 3.00%.
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