Unilever is Getting Ahead

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

When I was working for Unilever (NYSE: UL) 5 years ago, I was told about the fierce competition between the company and Procter & Gamble (NYSE: PG). Those two companies are the largest global fast moving consumer goods businesses. They made a variety of consumer products, including detergents, shampoos, and soap. Although Unilever is the smaller company, with around $114 billion in market capitalization, it seems that the company is becoming more efficient than P&G, especially in emerging markets.

Fantastic Growth

Recently, Unilever reported strong full year 2012 results. Sales grew 10.5% to €51.3 billion, while operating profit reached €7 billion, 9% higher than the operating profit last year. The diluted EPS increased by 5% to €5.14. Since 2009, Unilever has experienced consistent revenue growth, from €40 billion in 2009 to €51 billion in 2012. It reported that the growth occurred in every sector, including the Americas, Europe, and the Asia/AMET/RUB region, and in every category, including Personal Care, Foods, Refreshment and Home Care. Asia/AMER/RUB was the fastest growing cluster, with 10.6%, whereas Americas and Europe had the growth of 7.9% and 0.8% respectively. Home Care was the fastest growing category, with 10.3% growth in sales, while Personal Care ranked second with 10% growth. In 2012, its core operating margin was up 30 basis points, including 10 basis points in gross margin and 20 basis points in business restructuring. The core EPS increased from €1.41 to €1.57, mainly due to a €0.16 increase in operational performance.

Brand Portfolio Restructuring

In order to achieve that, Unilever has also successfully restructured its brand portfolio under Paul Poleman’s leadership. The company sold its North America Frozen Foods business for $267 million to ConAgra Foods. In addition, it sold Skippy peanut butter, the number two peanut butter brand in the US, for $700 million in cash to Hormel Foods. Along with the ongoing attempt to exit the frozen food business, Unilever shifted its focus to Beauty & Personal care in emerging markets. In the first half of 2012 it completed the acquisition of Concern Kalina, the Russia maker of Black Pearl facial products and Silky Hands creams, for $694 million.

More Efficient Than P&G

Unilever derived the majority of its revenue from emerging markets. Around 55% of Unilever’s turnover was generated in emerging markets, whereas P&G’s sales in emerging markets accounted for only 37% of the total revenue.

As P&G had more sales in developed markets, which have been facing an economic slowdown, P&G got hit hard. In the current weak economic environment, consumers tended to be more price-sensitive, and the decision to raise some of its prices might lead to market share loss for P&G. In addition, Unilever’s business structure was more decentralized than that of P&G. Thus, Unilever could cater quickly to local tastes and demands, while P&G was slower to adapt its products to local markets with more centralized operations.

Peer Comparison

Among the three big consumer products giants, including Unilever, P&G, and Colgate Palmolive (NYSE: CL), Unilever seems to be the cheapest company on the market. 

<table> <tbody> <tr> <td> <p> </p> </td> <td> <p><strong>UL</strong></p> </td> <td> <p><strong>PG</strong></p> </td> <td> <p><strong>CL</strong></p> </td> </tr> <tr> <td> <p><strong>Operating margin (%)</strong></p> </td> <td> <p>14</p> </td> <td> <p>19</p> </td> <td> <p>23</p> </td> </tr> <tr> <td> <p><strong>D/E</strong></p> </td> <td> <p>0.5</p> </td> <td> <p>0.4</p> </td> <td> <p>2</p> </td> </tr> <tr> <td> <p><strong>EV/EBITDA</strong></p> </td> <td> <p>11.68</p> </td> <td> <p>12.15</p> </td> <td> <p>12.96</p> </td> </tr> <tr> <td> <p><strong>Dividend yield (%)</strong></p> </td> <td> <p>3</p> </td> <td> <p>3.1</p> </td> <td> <p>2.2</p> </td> </tr> </tbody> </table>

The market is valuing Unilever at 11.68x EV/EBITDA, whereas the EV multiples of both Colgate-Palmolive and P&G are much higher, of 12.96x and 12.15x, respectively. However, Unilever had the lowest operating margin at 14%. P&G’s operating margin is higher at 19%. Colgate-Palmolive seems to generate the highest profit with a 23% operating margin. All three companies are paying a decent dividend yield to shareholders. P&G is paying the highest, with a 3.1% dividend yield, while Unilever and Colgate-Palmolive are paying 3% and 2.2% dividend yields, respectively.

Foolish Bottom Line

The race between Unilever and P&G will never end. It is all about the right strategy at the right time with the right execution. They are both fighting for global market shares in home care and personal care products. Colgate Palmolive is a bit different, as it has long established its global leading position in the toothpaste market. With the decent dividend yields, all three companies could fit well in investors long-term income portfolios. 


hoangquocanh has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble and Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus