Foods and personal care giant Unilever (LSE: ULVR) seems to have delivered yet another solid set of results, with underlying sales growth of 4.7% and core earnings per share up 1.3% to ?0.92 in the first half of 2016.
However, the maker of Magnum ice cream, Dove soap and Flora margarine warned that consumer demand remains weak and it does not see any sign of improvement in the global economy. In a worrying sign that this has already begun to affect the company, volumes in the food business declined 0.5% in the first half of this year. Although earnings…
Foods and personal care giant Unilever (LSE: ULVR) seems to have delivered yet another solid set of results, with underlying sales growth of 4.7% and core earnings per share up 1.3% to €0.92 in the first half of 2016.
However, the maker of Magnum ice cream, Dove soap and Flora margarine warned that consumer demand remains weak and it does not see any sign of improvement in the global economy. In a worrying sign that this has already begun to affect the company, volumes in the food business declined 0.5% in the first half of this year. Although earnings have continued to grow at Unilever, profits have been mainly driven by higher prices and cost cuts. In the longer term though, slashing costs and demanding higher prices can only go so far, otherwise customers could be driven to shop for cheaper brands.
Over the last few years, Unilever has been moving away from foods toward personal care products, which currently account for 38 per cent of the group’s sales. This seems to have been a wise strategy as the performance of its personal care division has proven to be much more resilient, with underlying sales and volume growth of 5.7% and 3.6%, respectively.
Looking ahead, Unilever is forecast to post a modest rise of 5% in its bottom line in the current year. Year-to-date, Unilever’s shares have gained 22%. Whether there’s any value left in the company share price remains to be seen, but Unilever’s shares already trade at more than 23 times forward earnings.
Sainsbury’s (LSE: SBRY) continues to see its market share shrink, as Aldi and Lidl pile on the pressure with their enlarged product offerings and new store openings. Like-for-like sales excluding fuel at Sainsbury’s fell 0.8% in the three months to 4 June.
The supermarket chain is banking on its £1.4 billion takeover of Argos owner Home Retail Group to help turnaround its falling sales trend and diversify away from the intensely competitive food market. Unlike Sainsbury’s, Argos is seeing a reversal in its sales trend, with total sales rising 2.6% to £868m in the 13 weeks to 28 May, thanks to recent new store opening and rising online sales.
The tie-up of the two businesses, which gained regulatory approval last week, could bring substantial synergies to both businesses. A spokesman for Sainsbury’s said: “The combination of both businesses will create a multi-product, multi-channel proposition with fast delivery networks, giving customers what they want, whenever and wherever they want it.”
But, whether this would be enough to restore sales growth remains to be seen. The supermarket sector continues to be locked in a price war, and online rivals Amazon and Ocado have an inherent cost advantage by not having an expensive high street presence.
Marks and Spencer (LSE: MKS) is going through a painful transition as it turns away business to focus on margins. Its general merchandise division, which consists of clothing, footwear and homewares, saw sales fall 8.9% on a like-for-like basis in the three months to 2 July this year.
Despite its attempts to lift margins, near term cost pressures could cause margins to fall further in 2016 and 2017. These cost pressures include the introduction of the new National Living Wage and rising import costs due to the weakness of the pound.
Shares in Marks and Spencer trade at 10.4 times forward earnings and carry a prospective dividend yield of 6.7%.
5 stocks you can rely on?
Jack Tang has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.