EARNINGS PREVIEW: Unilever Faces Emerging Markets Slowdown

By Peter Evans

Unilever PLC (UL) will release its full-year earnings report before the market opens in London on Tuesday. Here's what to look out for.

EARNINGS FORECAST: Net income of EUR1.64 ($1.90) a share is the consensus from a survey of 18 analysts, according to FactSet, a slight fall from EUR1.66 reported a year earlier. The company doesn't provide guidance on earnings expectations.

REVENUE FORECAST: Estimates call for sales of EUR49.93 billion, compared with EUR49.80 billion a year earlier.

WHAT TO WATCH:

- EMERGING PROBLEM: Having bet big on emerging markets (which make up nearly 60% of Unilever's sales, compared with around 40% at biggest rival Procter & Gamble Co.), Unilever has suffered more than most from the recent slowdown in those economies. Third-quarter sales in China dropped 20%, while many other big markets slowed dramatically as well. Investors will be eager to see if signs of weakness develop into a bigger problem.

- MARGINALLY BETTER: Unilever has said it expects to improve its operating margin this year as it benefits from raising prices across emerging markets as well as a company-wide cost-savings program. Last year's core operating margin--a key measure of profitability--increased by 40 basis points to 14.1%, and analysts expect another similar improvement.

- SIGNS OF IMPROVEMENT: After missing expectations in the third-quarter--overall sales growth of 2.1% was the weakest in years--can Unilever bounce back? Most observers appear to think it can. "We consider 3Q to be the nadir, and expect improving organic sales growth in 4Q with sustained pricing and slightly improved volume," said Bernstein analysts.

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