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Unilever (NYSE:UL) releases earnings this Thursday where we’d be watching volume growth metrics and pricing trends amid macroeconomic uncertainty in the developed markets. The top-line trends are expected to be largely driven by price growth and robust emerging markets. We are also looking for trends in operating margins given the high input cost inflation this year. Unilever is the second largest consumer goods company in the world after Procter & Gamble (NYSE:PG).

Looking for volume growth trends

Last quarter, Unilever achieved sales growth of 7%. While volume growth was 2.2%, which indicated slowing growth in sales volume, the top-line growth was largely driven by pricing growth of 3.5%. Volumes were thus in line with the market growth of 2% after taking out the pricing impact.

This quarter, we are looking for improvements in volume growth trends, even though we expect pricing growth to contribute to the majority of its revenue growth. As market conditions remain sluggish in the developed economies particularly in Western Europe, we are looking for share performance in these markets. Yet, the majority of Unilever’s volume growth is expected to come from emerging markets that have been growing in double digits.

(Chart created by using Trefis' app)

Operating margin trends

Almost all of Unilever’s product categories have been managing significant input cost inflation this year, which have been only partially mitigated through pricing actions and savings initiatives. This led to lowering of overall gross margins by 230 bps and operating margins by 20 bps over the first half of 2011. Operating margins greatest decline came from Unilever’s Home Care division that contributes to 42% of Unilever’s stock price. It suffered a decline of 330 bps because of higher input costs and we are looking for the division’s performance on this front this quarter.

(Chart created by using Trefis' app)

We value Unilever with a $31 Trefis price estimate of its stock at roughly 10% discount to its current market price.

Disclosure: No positions