Taking a cue from CEO Paul Polman's cautious tone, I don't want to suggest that consumer-staples titan Unilever
That's a big step up from earlier in the year, when the maker of Ben and Jerry's, Dove, and Vaseline-brand products saw volume slip across the globe. It also improves upon prior-quarter performance, when volume ticked up but operating margin got squeezed.
To dig into this three-for-three win, let's begin with sales. First off, the reported figure was down 2.2% versus the year-ago period. However, the combined effect of acquisitions/disposals and currency rates pushed revenue lower by 5.5%. Excluding such developments, sales rose 3.4% annually, outperforming the similarly measured sales of competitor Procter & Gamble
That said, consider that pricing adjustments weighed on Unilever's sales growth. In the recently completed quarter, management eased certain product prices to reflect lower commodity costs -- a move mirrored by Kraft
And there's no doubt that consumers flocked back to Unilever products. Adjusted for special items, organic volume growth was 3.1%, with all regions and product categories posting a positive contribution. Here, Unilever handily bested P&G and Colgate-Palmolive. These key competitors posted lower total volume growth, while also suffering weakness in important developing and emerging markets.
As for company efficiency, operating margin ticked up 0.7%, helped by a larger gain in gross margin. That, in turn, came on the back of cost-savings programs and lower commodity expenses. However, CEO Polman noted that the company's operating structure was "still too complex," while identifying future opportunities to "smartly leverage scale in the areas of raw and packing materials, global procurement and shared services." This is only one instance in which Polman showed an appetite for both realism and self-critique. Compared to a CEO who only sings a company's praises, Polman's stance bodes well for future shareholder value.
On that note, by year's end, cost-savings initiatives are slated to reduce expenses by 1.2 billion-1.3 billion euros. For now, such savings are largely offset by restructuring charges, but the full benefit of increased efficiency should flow to the bottom line in 2010. In addition, I'm encouraged by management's focus on product innovation and building consumption among the world's rising consumer class.
Moreover, Unilever's been active on the acquisition front, snapping up the personal-care brands of Sara Lee
Up 5% excluding special items, Unilever's earnings per share were hardly inspiring. And the 36% drop in reported net income may look downright scary. However, between the benefit of cost savings, the absence of related charges, and what management expects to be firmer pricing in the second half of 2010, the stock's forward P/E of 14 looks reasonable.
Finally, while Unilever is eclipsed in size by competitors Nestle and P&G, it has none of the former's bottled water exposure, and it's been able to turn volume around faster than the latter. So for investors who prefer their consumer-staples companies big and global, I'd say that Unilever is a standout name.
