Faced with an array of choices, do you choose the snazzy blue one, the flashy red one, or the cheap, bland white one that says "compare to ingredients in snazzy blue."
Such is the dilemma for Unilever
That's all bad enough during good times, but with the economy a little low on vigor and consumers watching their spending, it's a definite recipe for sluggish sales.
The headline numbers in Unilever's second-quarter report certainly don't show this -- total sales were up 12.4% year over year and net income jumped almost 40%. However, sales were significantly affected by currency changes, and underlying sales growth was just 3.6%. That gain was actually on 5.7% in volume growth, which was cut down by a 2% slip in product pricing.
Exchange rates also helped the profit side of the equation, but so did restructuring costs in the year-ago period. Adjust for both of those and you knock a 23% gain in operating profit down to 5%. The company didn't do a similar breakdown for net income, but you can add a lower effective tax rate versus a year ago to the already-named factors that helped goose the numbers.
So at the end of the day, you end up with much lower underlying revenue and profit growth, falling prices, and higher advertising and promotional spending. The latter is something that has shown up in many of the reports from Unilever's competitors, and much of the focus has been put on promoting new products -- and Unilever certainly had some of those. However, Church & Dwight
The above is the pessimistic view of Unilever's quarter, and explains the near 5% drop in the stock after the release. But at the same time, we could say that Unilever is showing the strength of its brands and the strides that it's making in emerging markets -- underlying sales growth in its Asia, Africa, and Central and Eastern Europe segment grew 8.2% in the quarter -- during what has been an extraordinarily tough time for any company targeting consumers. The company is still financially strong, and its stock kicks out a 4% dividend yield.
Like most of the other stocks in the consumer goods sector, Unilever's stock looks right in the range of what I'd call "fairly valued" right now. In fact, I think others in the sector like P&G and Church & Dwight are more attractive than Unilever at the moment. It's a solid company, though, and has been making strides to improve its operations, so it's definitely worth keeping an eye on in case shares continue to get cheaper.
The consumer staple industry lays claim to some nice dividend payers, but it doesn't have this dividend play for a lifetime.
Unilever is a Motley Fool Global Gains recommendation. Procter & Gamble and Unilever are both Income Investor recommendations. The Fool owns shares of and has written covered calls on Procter & Gamble. Try any of our Foolish newsletters today, free for 30 days.
Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool’s disclosure policy assures you no Wookies were harmed in the making of this article.