Unilever Q2 profits up

Investors who owned Unilever stock from 2010 would have been very happy as the stock price has benefited from the impact of lower interest rates and some profit growth resulting in the stock price more than tripling.

But profits have lagged the stock price performance. For example, for the 3 months to June this year, profits are up to $14.4 million after tax, compared to $12.6 million in 2012 an increase of 14 percent increase. For the 6 months, profit is higher by 13.6 percent to $27.4 million, that is just a few points below the near 17 percent increase in stock price this year, the stock seems poised to increase in price even more than it has done so far. For the 3 months to March this year, profit was up to $13 million after tax, compared to $11.9 million in 2012. The June quarter represents a higher increase than that enjoyed in the first 3 months of the year.

Revenues up | Revenues which climbed to $133.6 million in the first quarter, grew to $147.3 million in the June quarter, up from $142.2 million for June 2012 quarter. For the 6 months, revenues are up from $269.7 million for the same period last year to $280.9 million this year, a mere 4 percent increase.

Stock price | Unilever’s 17 percent stock price growth this year so far is ahead of the gain in earnings and is on top of a 45 percent increase in 2012, 44 percent in 2011 and 35 percent in 2010 after a 16 percent fall in 2009. The stock seems poised to rise further as demand exceeds the supply of the stock on the Trinidad market. When stock prices rise much faster than the growth in profits, it is time to take serious note of what is happening. Investors in such stocks should be fully conversant with what are the factors at play to ensure their investment can be properly protected if, and when, the factors change.

Unilever products – Unilever Caribbean continues to trade at new highs virtually each time it trades.

The company | A subsidiary of Unilever PLC, a United Kingdom company, and based in Trinidad, the company manufactures a range of homecare, personal care and food products for the Caribbean region including Jamaica and has been having a reasonable profit performance for a number of years. In fact, they have been able to improve sales and margins in a market that has been in recession since 2009.

Some of the company’s brands include Mistolin, Radiante, Breeze, Vaseline, Lux, Lipton, Becel and Blue Band. The product range also includes dishwashing liquids as well as fabric conditioners.

Big quarter | The December quarter is the biggest period for earnings with more than a third being generated in the period. For 2012 full year to December the company reported after tax profit of $59.5 million, an increase of 2.8 percent over that earned in 2011. Profit for 2011 was up 11 percent over 2010 and 2010 profit was up 26 percent over the previous year. Lower interest rates in Trinidad have helped to push the PE ratio to 21 times the IC Insider’s projected earnings of $1.58 per share for 2013. Presently at a stock price of $55, this is up from 14 times in 2011 and 11.5 for 2010.

Improved margin | Unilever is not doing exceptionally well in a tight economy but it is clearly enjoying areas of success reflected in good growth in some of it products. Management earlier this year expressed concerns about rising input cost for some of the products it manufactures and competition from cheaper products. From all indications, management seems to have managed to be steering the operations well, resulting in improved margins and continued growth in profit. Gross margin climbed to 66.2 percent in the June quarter, up from 63.8 percent in the first quarter and up from 63.7 percent for the twelve months of 2012 and is a continuation of the marked improvement seen for 2012 over the 59.2 percent in 2011.

While cost increase seems to be under control for the first quarter in 2013 that was not the case in 2012 when selling cost rose by $17 million or 17 percent and administrative cost rose 22 percent, well above the growth in revenues.

In the latest quarter, sales & marketing cost is flat with 2012 but administrative cost climbed 38 percent to $10 million, a change to the flat numbers in the first quarter. While for the 6 months, sales & marketing cost is flat with 2012 but administrative cost is up 20 percent and is up faster than revenues are growing.

The company boast equity capital of $156 million, has no interest bearing debt and a high current asset ratio with liabilities almost covered twice over.