Alberto's Weak Growth Will be Unilever's Problem

While Alberto-Culver's middling 1Q results confirm our view that Unilever is paying full price for acquiring it, the deal is likely to go through

Lauren DeSanto 1 February, 2011 | 8:57AM
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Total first-quarter sales at Albert Culver (ACV) increased 11.7% compared to the year-ago period, but organic sales growth was much lower, at 4.4%. For the firm's US segment, sales were up 2.8% from a very weak base period when sales in the region declined 2.5%. International sales increased a healthy 25.3% during the current quarter, with sales from the acquisition of the Simple brand, and positive foreign currency trends providing a boost of 18.3%. Higher input costs clipped 20 basis points from gross margins, but selling, general and administrative costs declined to 20.4% from 21.5% during the year-ago quarter, which kept operating margins healthy. The first and second quarters last year marked a very bumpy period for Alberto from an operations standpoint, as the firm encountered SAP and inventory troubles while ramping up its new manufacturing facility in Jonesboro, Arkansas.

Generally speaking, Alberto's results weren't surprising, and we see nothing that would derail the pending acquisition by Unilever (ULVR). If anything, the results reinforced our thinking that the weak category growth in hair care may stretch out over a longer time horizon than we had anticipated. As we've said previously, Unilever is paying a full price for Alberto, and today's middling results certainly support this view. Given that growth is languishing in the US, an integration aggressively focused on finding synergies and cost savings opportunities within Alberto also won't be much of a surprise once the deal is finally done.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Unilever PLC4,696.00 GBX3.39Rating

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Lauren DeSanto  Lauren DeSanto is Morningstar's chief operating officer for equity research.

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