Today I am looking at why I believe Unilever (LSE: ULVR) (NYSE: UL.US) remains a shrewd stock selection.
Here are two numbers that I think help make the case.
40
The demand for premium — and often extremely niche — goods across the globe remains very much in vogue despite the impact of macroeconomic cooling on consumers’ wallets.
In light of this charge, Unilever has gradually stepped up expansion of its own premier brands in recent times. Just last week advertising paper campaign reported that the business is launching its first global marketing campaign for its Maille range of pickles, vinegars and other luxury garnishes. And David Lowes, senior vice president of Dressings at Unilever, commented that “Maille is a jewel of a brand for which we have exciting plans.”
The brand comprises 40 different mustard types alone, and on top of its marketing plans Unilever is pushing the brand by expanding the number of specialist Maille boutiques — the firm opened an outlet in London’s Piccadilly in 2013 and plans to unveil another in New York in the near future.
The rising popularity of high-end labels of all shapes and sizes is underlined Diageo’s vast marketing and expansion campaigns in Asia over the past year, the firm having spent a fortune to roll out its Johnnie Walker VIP whisky bars in China, Korea and Australia.
The strength of aspirational buying from developing market consumers especially makes heavy investment in such labels highly profitable, and is a phenomenon which looks set to increase in line with rising personal affluence levels and a rising middle class in these new regions.
1,400
Of course the bears have come out in force since Unilever’s troubled interims last month, which showed revenues during July-September miss even the most pessimistic analyst forecasts. Underlying sales grew just 3.2% during the period, the slowest rate of expansion for five years and exacerbated by evaporating off-take in emerging markets.
However, Unilever is taking steps to ride out the current troubles at the top line, including the axing of 1,400 jobs this year alone as part of a vast cost-cutting drive. The firm has also executed a number of divestments across its underperforming Foods divisions, including the sale of its Ragu and Bertolli pasta sauce brands in North America earlier this year.
And following last month’s results, chief executive Paul Polman advised that “we have further accelerated our initiatives to remove unnecessary cost, simplify the business and ensure that Unilever is both agile and resilient” in the face of enduring trading difficulties.
I remain convinced that Unilever’s portfolio of blue ribbon products, which range from Dove soap through to Domestos bleach, should underpin solid long-term earnings growth once cyclical problems in developing markets subside. And in the meantime the firm’s committed programme of expense slashing and asset sales should help guard against severe earnings weakness.
