Surprising Growth at Unilever

In the consumer packaged goods business, a brand is a brand. When was the last time you checked a jar of Skippy peanut butter to see who makes it? It really shouldn't matter whether the brand is owned by Procter & Gamble (NYSE: PG  ) or Kellogg (NYSE: K  ) -- both U.S.-based companies -- or Income Investor recommendation Unilever plc (NYSE: UL  ) , which is based in the U.K. and the Netherlands. The peanut butter tastes good, and you buy it.

We should be thinking of stocks the same way. Ignore whether a company reports results in euro, or calls net sales "turnover," or spells "programme" in an offbeat way. Instead, investors should just look for the best-tasting peanut butter.

Unilever reported surprisingly strong first-quarter results on Thursday. (Pardon me if I use U.S. terminology for the rest of this article.) While net sales were flat compared to the prior year in euro, they rose 5.7% excluding the effects of currency and business disposals. This unit volume growth pleasantly surprised analysts, who had been expecting only about 4%. Nearly all the increase was driven by higher unit volume; only 0.8% came from pricing. Unilever is starting to experience benefits from a renewed focus on new product innovation.

This volume growth was similar to Procter & Gamble and Colgate-Palmolive (NYSE: CL  ) , and stronger than Kimberly-Clark (NYSE: KMB  ) or Kellogg. I find it impressive that the company delivered this unit growth on the same advertising expense as the prior year. Several U.S. consumer-products companies are bumping up their ad spend considerably to drive market share increases. 

Operating profit jumped 40 basis points as a percentage of sales. Higher commodity costs (which all the consumer goods companies are grappling with) were more than offset by supply-chain expense savings and volume leverage. Earnings per share of 0.33 Euros from continuing operations grew 7%-10%, excluding currency effects. EPS also surprised analysts on the upside; expectations had been 0.32 Euros. The stock was up more than 3% on the day.

Unilever plc pays a dividend slightly north of 4%. As fellow writer Todd Wenning noted a few weeks ago, a $20,000 investment in Unilever in 1957 would have yielded $14.3 million by 2003 (with dividends reinvested). I find it hard to argue with a 15% compound annual return over a 47-year stretch.   

As you think about how best to position your portfolio over the next few years, consider Unilever plc as a potential core holding. It's not sexy, and you may have to stretch your financial vocabulary to read the annual report. But a company with powerful worldwide brands like Lipton, Wish-Bone, Slim-Fast, Dove, and Vaseline could be a solid place to park some of your precious portfolio.

For related Foolishness:

Unilever is an Income Investor selection. Colgate-Palmolive is an Inside Value pick. You can check out any of the Fool's newsletters with a 30-day free trial.

Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He welcomes comments on his articles and doesn't own shares of any companies mentioned in this article. The Fool has a disclosure policy.


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