So far in 2006, going global has been a winning move for those investing in the food and beverage space. Europe's Unilever (NYSE: UL ) and Diageo (NYSE: DEO ) -- both Motley Fool Income Investor recommendations, by the way -- have trounced the S&P 500 return year to date. Closer to home, only Kraft (NYSE: KFT ) has come close to matching the international behemoths in this space, while uber-consumer product firm Procter & Gamble (NYSE: PG ) , with its reputation for steady, double-digit growth, has at least been able to match the market average so far this year.
Unilever pays out a hefty 4.6% dividend yield and offers global diversification. Not surprisingly, Europe represents its largest market, at close to 40% of sales, although the U.S. is a close second, at around 35% of the total. But it has also developed a reputation for having too much exposure to mature, slower-growing markets and little knack for product innovation.
If recent quarterly results are any indication, however, growth trends may be picking up. Total sales advanced 4.8% for Unilever's third quarter. That doesn't sound overly impressive, but it's the highest level the company has posted in nearly four years. To put that into perspective, total sales grew only 2.9% in the last full fiscal year, while the top line has actually fallen 3.6% on average annually over the past five years.
Bottom-line profitability has been more uneven, with net income and operating cash flow having fallen over the past few years. Third-quarter earnings growth was still negative, but year-to-date net profit from continuing operations grew 5%. Management is hopeful that it can continue this positive momentum going forward; it has worked to divest slower-growing, less profitable businesses, such as its European frozen-food operations.
But although results are improving, don't expect growth trends to pick up much steam. Because it's one of the largest food and consumer brand companies in the world, Unilever has a hard time gaining market share or to creating much of a sales or profitability impact with new products. However, being large and mature has its advantages, too, as witnessed by shareholder-friendly initiatives such as the high dividend coupon and an ability to use excess cash to repurchase shares. Once in a while, there's the added bonus of capital appreciation in the stock price.
Shares of Unilever just reached another 52-week high and are up nearly 30% over the past year. If sales trends continue to accelerate with a positive impact on earnings and cash-flow generation, expect further gains ahead. If not, investors can take solace in collecting a decent amount of annual income in a company that also adds some international flavor to their portfolios.
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Kraft, Diageo, and Unilever areMotley Fool Income Investorrecommendations. Check out our dividend-stock newsletter service free for 30 days.
Fool contributor Ryan Fuhrmann is long shares of Diageo but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.