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Unilever (NYSE: UL ) reported an impressive earnings gain in the third quarter, but after stripping away unusual items, the results look pretty much like what we've seen all year from this Anglo-Dutch consumer-products giant -- steady but unspectacular.
Underlying sales growth climbed 8% for the quarter, largely on the strength of price increases. Case volume growth of 0.6% remained in positive territory, better than we've seen this quarter from Kraft Foods (NYSE: KFT ) and Kimberly-Clark (NYSE: KMB ) . Volumes were down in Europe but up around the rest of the world.
Operating profit leapt 94%, but nearly all of those gains were from the sale -- which closed in July -- of the company's Lawry's and Adolph seasonings brands to McCormick (NYSE: MKC ) . Backing those gains out, management reported a 4% operating-profit improvement -- not much to write home about.
True, the company has been struggling with commodity cost increases that have put a damper on earnings growth. This is the same story we've heard from a host of consumer-products companies this year. But Foolish investors will note that best-in-class competitors such as Colgate-Palmolive (NYSE: CL ) and Procter & Gamble (NYSE: PG ) have found a way to leverage sales growth to the bottom line in spite of these pressures.
Two points from the earnings conference call are encouraging. Management stressed that many of the company's key products (like margarine) have a history of thriving during recessions because they are staple meal components. The company is less exposed than some of its competitors are to having consumers trade down to less expensive private-label products.
Management also believes the most recent quarter may be the high-water mark for commodity cost increases. If so, 2009 earnings may pick up a tailwind. This is a theme I expect to see next year among all of the consumer-product companies.
On balance, Unilever looks like a solid defensive choice. I like the company's broad geographic diversification, and it's hard to argue with a dividend yield of more than 4%. I also note that the stock is 40% off its 52-week high -- more than you would expect from a defensive issue during a market downturn. No doubt Unilever investors are not thrilled with how the stock has held up recently. But this also points to potentially more upside than downside at the stock's current price.