Low growth for Unilever

Third quarter growth at Unilever (ULVR) was the slowest since the financial crisis took hold in 2009. Underlying sales grew 2 per cent, with volumes up just 0.3 per cent, while prices rose 1.8 per cent rise. Currency headwinds continued to hamper growth, too: group turnover fell 2 per cent to €12.2bn (£9.6bn), which included a negative currency impact of 2.6 per cent.

Indeed, Unilever is operating in extremely difficult markets. Macro-economic conditions continued to pressure consumers and market growth slowed in emerging economies - particularly in China, where the group experienced substantial trade de-stocking. Europe, meanwhile, saw price deflation and poor summer weather, which hit the ice-cream category. However, the North American performance improved and Latin America benefited from extreme price inflation.

As usual, the personal care and home care categories delivered growth - albeit at a slower rate - while volumes in the foods and refreshments segments fell. Management has retained its guidance for "another year of profitable growth ahead of its markets" and continues to manage profit margins, cut costs and invest in its brands.

Deutsche Bank says...

Buy. Buy. Market growth is universally weak, Unilever is not immune to this, and the group is trying its best to navigate the challenges. All in, Unilever is in genuinely robust shape in what is clearly a frustratingly slow growth environment for its categories. Indeed, at a time of demand softness, we would argue that it's time to buy into this glaringly obvious long-term opportunity. Despite a 7-8 per cent currency headwind in 2014, we still expect Unilever to grow earnings: to 161¢ a share from 2013's 158¢. And with currency headwinds somewhat reversing in 2015, EPS growth could approach 10 per cent to 176¢, with pre-tax profit of €7.26bn, and a 126¢ dividend.

Charles Stanley says...

Hold. Despite weak market conditions, Unilever is confident that it can deliver earnings growth by improving its operating margin and maintaining strong financial discipline. The third-quarter update shows little change in the group's operating environment, though, with market conditions remaining challenging - weak consumer demand, price deflation, and an increasingly competitive retail environment. However, Unilever has the ability to manage its cost base in difficult conditions and is doing so to underpin the group's financial performance. The shares are up 2.1 per cent year to date, trade on a forward PE ratio of 17, and offer a forward yield of 3.7 per cent. Its peer group trades on just shy of 19 times forward earnings.