Unilever vs Procter & Gamble

A manufacturer and supplier of fast moving consumer goods, with more than 400 brands focused on health and wellbeing, 14 of which generate sales in excess of €1 billion a year. I have a holding in my income portfolio (epic code: ULVR).

On Friday 24 January Procter & Gamble issued their half year results, so it is interesting to produce a brief comparison with Unilever's full year results released on 21 January commented on here.


Sales for PG were $43.5bn for the six months, with an operating profit of $8.7bn, producing an operating margin of 20.0%.  Normalised EPS was $2.35 up +3% compared to last year, although statutory diluted EPS was $2.21 down -6%; this compares to ULVR's full year results that had underlying EPS up +3% and statutory diluted EPS up +11%.

Interesting to note the difference in trends on gross profit margins as ULVR grew theirs by +110 bps and PG saw theirs decline by 100 bps.  PG clawed the loss back by overhead cost reductions, so that operating margins improved by +30 bps, in contrast to ULVR who saw higher overhead spending managed an increase of +40 bps in the operating margin.

On a trailing twelve months (TTM) PG's sales were $85.4bn (€62.3bn) with an operating profit of $15.8bn (€11.5bn) producing an operating margin of 18.5%. This compares to Unilever's results for the full year of €49.8bn with an operating profit of €7.0bn producing an operating margin of 14.1%.


Although PG's operating margins are impressive, they do have a lower return on capital employed (ROCE) of about 18% compared to ULVR's ROCE of over 30%, due to the latter's more efficient use of capital.  This compares to the working average cost of capital (WACC) for PG of 7% compared to ULVR's 8%, which would imply that ULVR is creating 22% of value for each invested € of capital compared to PG's 11%.

ULVR did suffer from a lower generation of free cash flow (FCF) for the full year at €3.9bn down -11% on last year, but PG's FCF at $3.7bn for the six months was down -28% on last year.  PG though produced 8.5% of sales as FCF compared to ULVR's 7.8%.

PG is currently distributing about 51% of its earnings as dividend compared to ULVR who distribute about 68%.  PG's historic yield is 3.1% compared to ULVR's 3.7%.


The organic growth of the two businesses over the past four quarters are detailed in the table below:

Click on table to enlarge

This has ULVR ahead in all quarters with the exception of their disappointing third quarter to September.  PG does not supply a breakdown of their sales by territory, so it is not possible to make any comparisons.  PG did though state that emerging market sales grew by 8% in their December quarter, this compares to ULVR's 8.4% in the same quarter.


Interesting to compare the two forward looking statements:


 PG's
 “We’re on-track to deliver our objectives of 3-4% organic sales growth and 5-7% core EPS 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.”


ULVR's
"...Looking forward, we anticipate ongoing volatility in the external environment and are positioning Unilever accordingly..."  and in his presentation he states "...Slow market growth expected to continue in 1st Half..." and "...late Easter will shift volume from Q1 to Q2..." 


This may be a difference in style of PG's Lafley versus ULVR's Polman, or possibly that ULVR believe they may see a slowing of its growth to below PG's levels.  Personally I believe there is far more pressure on Lafley, who returned as CEO last May to replace his chosen successor McDonald, who had stalled PG's performance.  Lafley the returning "golden boy" is hardly likely to paint a downbeat outlook so early on his return, despite markets being tough.

I see these as two large corporations still performing well in difficult markets, with ULVR possibly having the edge in recent performance.