Turning Sustainably Sourced Palm Oil Into Profits

Consumers are becoming more and more socially conscious, and want the goods and services they use to measure up. It doesn't take much. A simple action that costs a company very little or nothing at all can make a real difference in the mind of the consumer -- and the company's bottom line.

I've been hearing good things about Unilever (NYSE: UL  ) lately. Let's have a look at the consumer-goods giant. We'll analyze the company in terms of its performance as a socially conscious enterprise, as a business, and as an investment.

Palm oil: It's everywhere you'd never imagine it to be
Dove. Hellman's. Lipton. Vaseline. Ben & Jerry's. The list of powerhouse brands under the Unilever umbrella goes on and on. Every day, somewhere on the planet, 2 billion people use or eat a Unilever product (an important distinction to be made on the part of the consumer).

And like most big companies today, a trip to Unilever's website reveals a very visible link to its sustainable-living section, which lays out a comprehensive, three-tiered plan of action:

  • Improving health and well being.
  • Reducing environmental impact.
  • Enhancing livelihoods.

Each of these plans is then broken down into subsections, like health and hygiene, greenhouse gases, and sustainable sourcing. But it's this last one that's of most importance to our discussion.

A company like Unilever obviously goes through a lot of raw materials to make its products. The mining, harvesting, or otherwise taking-what-you-need-from-the-planet to make your product is a hot-button issue these days. Unilever is very aware of this, and has committed to sourcing the entirety of its raw materials from sustainable sources, most notably palm oil, by 2020.

Palm oil is used in nearly 50% of consumer-goods items. Unilever uses 1.4 million tons of the oil all by itself, making it the world's biggest consumer -- which is what makes this pledge all the more laudable and likely to have a real environmental impact.

Keeping up with the Joneses
Now, let's look at a few basic metrics and see how Unilever measures up as a business and an investment against its peers:

Revenue growth: In its most recent quarter, Unilever grew its revenue by a hearty 12% year over year, while Procter & Gamble's (NYSE: PG  ) revenue actually contracted 1%. Colgate-Palmolive (NYSE: CL  ) grew its revenue only 2% YOY, while Clorox (NYSE: CLX  ) managed 4%.

Earnings growth: Year-over-year earnings for Unilever actually contracted by 2.4%, while over at Colgate-Palmolive, earnings grew by 0.8%. Clorox managed an equally uninspiring 3% earnings growth.

Cash-to-debt ratio: It's always good to see more cash than debt on the balance sheet, ideally at least 1.5 times more.

  • With $6 billion in cash and $17.9 billion in debt, Unilever's C/D is a disappointing 0.33.
  • With $4.4 billion in cash and $29.8 billion in debt, P&G's C/D is an even more disappointing 0.14.
  • $1.1 billion in cash and $5.4 billion in debt give Colgate-Palmolive the sad C/D of 0.20.
  • Finally, $267 million in cash and $2.7 billion in debt gives Clorox the worst C/D of all: 0.10.

With interest rates as cheap as they are, too many companies are highly leveraged these days, and it's an ultimately dangerous position to be in. Because when things go wrong (and they always do), the bigger the war chest a company has, the better chance it has of coming through to the other side intact.

Price-to-earnings ratio: All four companies have P/Es in the upper teens/low-20s range, so none are a significantly better value in that sense than the other. And while P/Es like this are on the higher side in general, none of them are outrageously so.

Making money while making a difference
Unilever could be doing better when it comes to earnings, but so could all of the companies we've looked at here. It's a weak worldwide economy out there. And the same goes for cash-to-debt positions: Everyone could be doing better. But Unilever's numbers are overall strong enough to demonstrate that even though it takes its social responsibility duties very seriously, it can also be a strong, traditional corporate competitor.

Unilever isn't perfect in this regard, but to paraphrase Voltaire, it's important to never let the quest for the perfect drive out the good.

Always on the lookout for a great investment? The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors that understand the landscape. You can read about the 3 Companies Ready to Rule Retail in our special report. Uncovering these top picks is free today; just click here to read more.

 

John Grgurich has no positions in the stocks mentioned above. The Motley Fool owns shares of Clorox. Motley Fool newsletter services recommend 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.


Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2057962, ~/Articles/ArticleHandler.aspx, 10/24/2014 4:31:41 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement