Many companies in the consumer sector are being hurt by economic uncertainty lately. On the other hand, Procter & Gamble (PG -0.41%), Unilever (UL -0.60%), and Kimberly-Clark (KMB -1.04%) are reporting solid performances in a tough economic environment, and that's an important sign of resilience and fundamental quality for these companies.
Procter & Gamble
Procter & Gamble delivered flat sales for its fiscal 2014 second quarter ended on Dec. 31, but this was mostly because of currency effects, which had a negative impact of 3% on the company's revenues. Both organic volume and organic sales increased by 3% versus the same quarter in 2012, so performance was not as stagnant as figures in U.S. dollars may indicate.
One-time items and currency effects during the quarter make the earnings comparison look quite dismal, with a 15% decrease in earnings per share. But things look quite different once the numbers are adjusted for those variables: Core earnings per share on a currency-neutral basis increased by a healthy 8% versus the year-ago quarter.
While the beauty segment was quite weak during the quarter, with a 1% increase in volume, health care was much better, with a 6% growth rate in volume. The same goes for fabric and home care, which delivered a volume increase of 5% during the quarter.
Chairman, president, and CEO A.G. Lafley is sounding quite optimistic about the company's prospects for the rest of the year: "We're on-track to deliver our objectives of 3-4% organic sales growth and 5-7% core earnings-per-share growth for the fiscal year. We expect strong earnings growth in the second half of the fiscal year driven by solid top-line growth, moderating headwinds from foreign exchange, and productivity savings that build throughout the year."
Unilever has successfully expanded in emerging markets over the last several years, which exposes the company to currency fluctuations and economic volatility to a considerable degree, but it also means superior growth prospects in the long term. Currency fluctuations have been a big negative factor for the company during the last quarter of 2013, but underlying performance was quite strong when adjusted for that factor.
Total underlying sales rose by 4.1% during the fourth quarter of 2013, sales volumes grew by 2.7%, and price increases accounted for the remaining 1.4%. Underlying sales in emerging markets were particularly strong, with a growth rate of 8.4% on the back of a 5.3% increase in volume, while underlying revenues in developed countries decreased by 1.7% during the quarter.
The personal care and home care segments are generating sound performances, with underlying sales growth rates of 7.3% and 6.5%, respectively. However, the foods segment generated an increase of only 1%, and the refreshment division delivered a decrease of 1.2% in underlying sales.
CEO Paul Polman is satisfied with the company's performance in a challenging environment: "We have delivered another year of consistent underlying sales growth and margin expansion coupled with strong cash flow. This has been achieved despite significant economic headwinds and highly competitive markets and reflects the benefits of strong margin accretive innovations and active cost management."
Like its peers, Kimberly-Clark is being negatively affected by foreign exchange volatility, but its performance adjusted for currency fluctuations remains quite healthy.
Sales in U.S. dollars were flat during the quarter, at $5.3 billion, but organic revenues, which exclude the impact of currency volatility and the restructuring in the company's European pulp and tissue operations, increased by 5% on the back of a 4% increase in volumes and a 1% rise in prices.
The company expects to deliver organic sales growth of between 3% to 5% during 2014 on the basis of a 2% to 3% increase in volume and an additional increase of between 1% and 2% in average selling prices.
Chairman and CEO Thomas J. Falk expressed his confidence on Kimberly-Clark's ability to continue delivering sound performance in spite of macroeconomic headwinds: "While we expect significant currency headwinds and higher commodity costs this year, we plan to deliver solid bottom-line growth. We remain optimistic about our prospects to drive profitable growth and generate attractive returns to shareholders."
Earnings reports from Procter & Gamble, Unilever, and Kimberly Clark have many points in common. A challenging economic environment and currency volatility in emerging markets are considerable headwinds affecting the sector. However, the three companies are also strong enough to sail through the storm while increasing sales volumes over time. It takes a high-quality business to grow in a challenging environment, and this says a lot about these companies and their fundamental strengths.