Unilever Battles the Downturn


This article has been adapted from our sister site across the pond,Fool U.K.

If you don't know Unilever (NYS: UL) , then you're probably more familiar with its products. It's the Anglo-Dutch company behind many of the brands by your kitchen sink, in your fridge, and in your bathroom cabinet.

And you can bet your bottom dollar that if they aren't Unilever's, then they're probably made by U.S. rival Procter & Gamble (NYS: PG) , better known in the industry as "P&G." I once lived with an eager young Unilever brand manager who was so evangelical about her work that she refused point blank to let P&G products into the house.

But that's one of the secrets to the company behind products such as Magnum ice cream, Vaseline, Dove hair shampoo, and Domestos -- the strength of its brands. Life is hardly a bed of roses right now as tough trading conditions and rising input costs take a chunk out of its margins. However, Unilever managed to overcome these obstacles to report impressive half-year results.

Although underlying operating margins fell by 20 basis points because of higher input costs, pre-tax profits grew by 9% to 3.2 billion euros, while turnover was up by 4.1% to 22.8 billion euros. The City was pleased, and the shares jumped by 6% in the morning's trade.

Where the action is
These days, sales of its famous brands have pretty much peaked in the West, so emerging markets are where the action is. China and India delivered double-digit underlying sales growth during the half-year, and the company's Latin America market grew at just shy of 10%.

That said, surprisingly the performance in Western Europe was also strong during the period, with good headway made by Knorr jelly bouillon cubes in Germany. An aggressive rollout of Dove Hair Damage Therapy continues, and it will be in 30 markets by the end of 2011. Meanwhile, the launch of Magnum ice cream in the U.S. and Indonesia boosted the ice cream and beverage business, although tea sales in Japan were hit by the effects of the earthquake there.

The shares have performed well this year despite the tough market conditions, but they still offer plenty of attractions in my view. Graham Jones, analyst at Panmure Gordon, points out that Unilever has greater exposure to developing and emerging markets than its competitors yet is trading on a lower price-to-earnings ratio. Unilever's rating is around 13.5 for 2012, yet its peers, including Colgate-Palmolive (NYS: CL) , trade on an average P/E of 15.

Considering Unilever's huge portfolio of global brands, growth potential, and tasty dividend yield, this seems a little unfair.

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