SLE Hillshire Brands Company

We are upgrading our rating on Unilever N V (UN) to Neutral from Underperform based on impressive first quarter 2012 results.

Unilever recorded underlying sales growth (excluding the impact of acquisitions and disposals) of 8.4% in the first quarter of 2012, driven by both improved pricing and volume gains. The 8.4% growth comprised  a pricing benefit of 4.7% and volume growth of 3.5%. Emerging markets contributed 11.9%, whereas developed markets added 4.2% to the underlying sales growth.

We are encouraged by the Unilever's wide portfolio of globally recognized flagship brands, such as Axe/Lynx, Lipton, Blue Band, Knorr, Dove, Lux, Flora/Becel, Heartbrand, Omo, Rexona and Sunsilk, which provide a dominant position to the company in the sector. The company continues to introduce new brands, enhance them, and launch these brands in new emerging markets. In the first quarter of 2012, Unilever's Home Care segment benefited from the launch of Comfort fabric conditioners in the markets of Australia, New Zealand, South Africa and the Philippines. Household cleaners benefited from the launch of Domestos Toilet System range in Argentina, Pakistan and Sri Lanka. The launch of Sunlight hand dishwash products in South Asia and South East Asia; and Cif cleaners in China also added to the growth.

The company has been strengthening its portfolios and expanding in international markets through acquisitions. With the acquisition of the Personal Care business of Sara Lee Corporation (SLE) in the fourth quarter of 2010, Unilever added leading brands like Radox, Duschdas and Neutral to the company's portfolio in Western Europe. In addition, Unilever's acquisition of Chicago-based Alberto Culver in May 2011 made the company the world's leading company in hair conditioning, the second largest in shampoo and the third largest in styling. By controlling 82% ownership in the Russian brand of Concern Kalina (December 2011), Unilever has strengthened its portfolio in the personal care segment in Russian markets.

Besides, Unilever has also been expanding in the emerging markets of Brazil, India, Indonesia, Turkey, South Africa, China, Mexico and Russia. Sales from these fast growing markets accounted for more than 50% to the Unilever sales in 2011. These markets are expected to drive future growth for the company.

Though the company faces continued input cost headwinds and a difficult macro-economic environment which shows no signs of near-term abatement, we are positive about  management's cost saving initiatives, continuous brand launches and improved advertising. We thus remain Neutral on the stock.

 
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