A Very Quick Look at Unilever's Earnings

LONDON -- Right now I'm trawling through the FTSE 100 (UKX) and double-checking for blue chips that may be flattering their profits.

You see, many companies these days report "underlying" earnings, which are calculated by excluding costs the firm deems to be "exceptional." Trouble is, some companies are more cavalier than others when it comes to sweeping awkward expenses away from the headline figures.

Today I'm looking at Unilever (LSE: ULVR.L  ) (NYSE: UL  ) (NYSE: UN  ) to see if its reported earnings have been distorted significantly by exceptional, one-off or unusual items. I've extracted the following statistics courtesy of S&P Capital IQ:

Year to Dec. 31

2007

2008

2009

2010

2011

Profit before unusual items 3,591 4,788 4,362 5,266 5,221
Impairment of goodwill -- (51) -- -- --
Gain on sale of assets 218 2,100 -- -- --

Figures in millions of pounds.

While annual figures can provide some insight into how a business has performed, I reckon looking back over several years provides a better view of possible problems in relation to one-off costs.

So between 2007 and 2011, my stats tell me Unilever reported cumulative profits before exceptional items and tax of 23.2 billion pounds. However, aggregate exceptional costs came to 2.2 billion pounds -- equivalent to 9.5% of cumulative 'underlying' profits.

Although nearly 10% of Unilever's profits have been one-off items, they pretty much all relate to a 2.1 billion pound gain dating back to 2008. This resulted from the disposal of a range of non-core assets, such as Boursin, Bertolli, and a Russian ice cream business. This refocusing of the business seems to have helped, as we saw just yesterday with another great set of quarterly sales figures.

Arguably, Unilever has the cleanest profit and loss account of all the companies I have looked at so far -- quite appropriate for a firm that specializes in cleaning products!

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Stuart Watson owns no shares mentioned in this article. Motley Fool newsletter services have recommended buying shares of Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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