Unilever
Unilever’s (LSE: ULVR) second quarter sales figures came in above consensus estimates, as price increases had offset sluggish volumes growth. The consumer goods giant reported underlying sales growth of 2.9% and a 16% increase in core earnings per share (EPS), for the first half of 2015.
Whilst its personal care and home care brands are seeing steady sales growth, its food business continued to lag the rest of the group. Underlying sales for foods was flat in the second quarter of 2015, although it did report a modest 1.4% growth rate for the first half of 2015.
Sales growth in emerging markets recovered somewhat in the second quarter, having grown by 6.5% in the second quarter, up from 5.4% in the first quarter. However, volumes remain slow in Europe and Asia, which grew only 1.6% and 1.2%, respectively.
Although Unilever’s ability to deliver steady underlying sales growth in challenging market conditions demonstrates its wide economic moat, growth has been slowing and will likely continue to do so, as global economic growth remains sluggish.
The increase in the company’s level of indebtedness accelerated in the first half, as Unilever picked up its acquisition activity in the higher margin personal care space. Net debt rose €1.9 billion to €11.8 billion, over the past six months.
Unilever shares are not cheap, as they currently trade at 22.0 times its expected 2015 earnings of 131.3 pence per share. With growth slowing and debt rising, its shares are unappealing.
SABMiller
Today’s SABMiller (LSE: SAB) trading update confirmed existing trends of declining lager volumes and growing soft drink sales. In the three months leading up to 30 June 2015, soft drinks volumes were up 4%, whilst lager volumes fell 1%.
Declines in lager volumes in Europe and China had more than offset growth in Africa and Latin America. The trading environment remains difficult in China, and its latest trading update shows that the recent slack there was not only because of unexpected rainy spell, but also because of underlying structural problems with its brand.
With a series of disappointing trading updates, only bid speculation seems to be keeping SABMiller’s valuation high. Its shares trade at a pricey forward P/E ratio of 22.9, which means investors could be disappointed if a deal does not actually go through.
Britvic
Brtivic (LSE: BVIC), the non-alcoholic beverages company, witnessed an acceleration in international sales in its most recent quarter. In the three months leading to 5 July 2015, group revenue increased 1% to £322.3 million.
Although Britvic made market volume and value share gains in Great Britain, an adverse price mix led revenues to decline 0.8%. However, this was more than offset by strong international revenue growth of 6.8%.
Today, the company also announced that it is looking to acquire Empresa Brasileira de Bebidas e Alimentos SA, an independent Brazilian soft drinks manufacturer, for £113.6 million. To fund the acquisition, the company announced plans to raise approximately £90 million through the issuance of new shares. Shares in Britvic fell 1.4% to 723 pence on the news.
Valuations for the soft drinks maker is more attractive than the other two shares mentioned here. Analysts expect underlying EPS will grow 10% to 45.9 pence in 2015, which implies a forward P/E of 16.3. In 2016, underlying EPS is forecasted to grow another 8%; and this means Britvic’s shares trade at 15.0 times its expected 2016 earnings.
