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Unilever's 150m Brazilian loss raises wider concerns for RBC
After Unilever warned that organic revenue growth in the first half of the year will be below the bottom end of its 3-5% medium-term guidance range, analysts at RBC Capital Markets said it indicated the company will find it tough to hit revenue and margins targets.
The revelation, made at a conference in London, was a fairly marked turnaround from claims made at the time of the group's first-quarter results on 19 April that organic sales growth would be towards the lower end of that range.
The consumer goods giant expects to make up the miss in the second half, meaning that, on the surface, the issue seems to be related to timing more than anything else, RBC said, with the bulk of the blame being placed on Brazil, where the truckers' strike is expected to have a second-quarter impact of 150m. However, RBC analysts said this figure seemed to be "a lot".
Analysts estimated that Unilever's Brazil business accounted for roughly 4% of Unilever's global sales, noting that a 150m hit for the second quarter would equate to 25% of the firm's Brazilian sales in the quarter. "Are there other problems in Brazil?," the analysts pondered.
"We would regard an 11-day transport strike in Brazil as business as usual for a globally diversified FMCG conglomerate like Unilever. That management feels the need to lower market expectations for 1H, as a result, indicates that there's nothing in the rest of the group doing sufficiently better than management's previous expectations to compensate," the broker said.
RBC said the news was consistent with its view that Unilever's 2020 targets of 3-5% sales growth on a 20% EBIT margin were "a stretch".
"We think that Unilever's dual target on organic revenue growth and margin expansion deprives the company of the flexibility that is needed to succeed in the current challenging consumer environment."
"The risk is that Unilever will neglect marketing investment to hit the margin target, exacerbating top-line weakness and penalizing market share," the broker added as it reiterated its 'underperform' rating and £32 target price on the group.