A trio of reports from top household products makers is likely to show that consumers are truly back to buying and could be the catalyst the companies need to gain favor with investors.
Anglo-Dutch Unilever Plc/NV and U.S. manufacturers Procter & Gamble Co and Colgate-Palmolive Co weathered the economic storm as they sell products people use daily, such as deodorant and toothpaste.
Analysts expect to see volume growth as companies spend more to promote new products. Still, some say it is too early to know if consumers are ready to buy such goods without discounts.
I like the fact that they're innovating, I'm really still a little bit cautious how strong the consumer is to take the innovation, RBC Capital Markets analyst Jason Gere said of U.S. household products makers such as P&G and Colgate.
Both topped expectations last quarter.
For Unilever, which gets about half of its sales and profits from food brands such as Knorr, Hellmann's and Lipton, analysts expect to see a strong start to the year. Early signs of this were reflected in recent results from rivals Nestle and Danone , as well as data on strong growth in emerging markets and a slow recovery in the United States and Western Europe.
Results from peers have been good, with strong growth from emerging markets and we believe Unilever will also benefit, said analyst Sara Welford at broker Citi.
Unilever, which also makes home and personal products like Dove soap and Sunsilk shampoo, is expected to show underlying quarterly sales growth of 3.2 percent and volume growth of 5 percent after it cut prices last year to become more competitive, according to a survey of ten analysts by Reuters.
Meanwhile, P&G's sales are expected to rise about 6.1 percent, while analysts are expecting a 10.9 percent jump at smaller rival Colgate, according to Thomson Reuters I/B/E/S.
Emerging markets are key for the consumer product makers, as they have largely saturated developed markets like the United States. Nestle, for example, saw more than 10 percent growth in emerging markets, helped by a strong showing in the BRIC nations of Brazil, Russia, India and China.
For Unilever this is a good sign, since it has the largest exposure to emerging markets, which account for 50 percent of sales and EBIT (operating profit), said Rabo Securities analyst Karel Zoete.
RESULTS COULD DRIVE STOCK GAINS
Unilever NV shares have been in the doldrums recently, underperforming European food and drinks groups by 6 percent since the start of the year, but many see upside for the shares helped by the current weakness of the euro that should boost earnings for 2010.
We are buyers of Unilever. It looks the cheapest large-cap stock in the food sector and offers the highest operational upside, said Citi's Welford.
Colgate was a steady performer throughout the economic downturn and its shares have already risen to reflect that. Colgate now trades at nearly 19.1 times expected earnings, while P&G trades at 17.58 times. P&G shares are up about 5.5 percent year to date, Colgate has gained 2.7 percent, while the broad S&P 500 index <.SPX> is up nearly 9 percent.
Currency could pressure P&G and Colgate, however. Last week, Kimberly-Clark Corp Chief Financial Officer Mark Buthman said his company expected less of a currency lift in 2010 as the euro and British pound have weakened relative to the dollar.
Still, he was optimistic about sales of new goods even though earnings per share are under some pressure.
There has been a shift in consumer sentiment and consumer behavior. I think people were fearful a year ago, I think today I'd describe them as cautious and thoughtful, Buthman told Reuters.
Analysts expect Unilever's first-quarter earnings to rise to 0.32 euros a share from 0.26 euros, according to Thomson Reuters I/B/E/S.
P&G's fiscal third-quarter profit is expected to fall to 82 cents from 84 cents per share as it spends more to promote new products such as Pampers diapers with Dry Max and gets ready to introduce updated Fusion razors and Pantene shampoo.
Colgate's first-quarter earnings per share are expected to climb to $1.15 from 97 cents. Analysts expect Colgate to separate the impact of the Venezuela's currency devaluation, while P&G absorbs such headwinds into its bottom line.
We think they'll both do fine, P&G and Colgate, it just seems like some of the momentum may be shifting a little bit to P&G because they have a couple of easy quarters coming up, said Gere, who rates P&G sector perform and Colgate outperform.
(Reporting by Jessica Wohl; Editing by Bernard Orr)