Unilever’s (UN, Financial) stock has taken a hit with Brexit and a brush with Tesco (TSCDY, Financial). The stock is reasonably priced, and the company is one of the best consumer products marketers in the world.
The company has 2.84 billion shares, the ADRs trade for $39.06, and the market cap is $111 billion. The forward dividend is $1.42, and the dividend yield is 3.63%. Trailing 12-month earnings per share is $1.73, and the price-earnings (P/E) ratio is 22.57.
There are several series of shares as Unilver is Anglo-Dutch. The English ADRs are best for U.S. investors as the British do not withhold dividends. Stay away from the Dutch listing; dividends are withheld.
Revenue was $49.8 billion in 2013, $48.44 billion in 2014 and $53.27 billion in 2015. Earnings per share were $1.66, $1.79 and $1.72 over that time frame. Operating margins are 14.29%. Free cash flow was $7.33 billion last year, and the free cash flow yield is 6.6%. That’s a pretty reasonable price to yield. Much of the free cash flow is paid out as a dividend. Its debt is rated in the A range by the rating agencies.
Popular brands include: Dove soap, Lipton tea, Hellman’s mayonnaise, Vaseline, Ben & Jerry’s, Breyer’s, Country Crock, Degree, Klondike, Lever, Nexxus, Knorr, Q-Tips, Noxzema, Bertolli and hundreds of other brands. These brands are known in the U.S. Unilever has a presence all over the globe and many other brands. The company is opening a toothpaste and soap factory in Cuba. That’s a great way to make inroads into a small country – employ the people.
Personal Care accounts for 37.8% of sales, Foods 22.9%, Home Care 18.9% and Refreshment 20%. Europe accounts for 25.4% of revenues, the Americas 32% and the rest of the world 42.6%. Developed markets account for 43% of revenues and emerging markets 57%. I’m surprised what a large percentage emerging markets makes of Unilever’s sales. In the most recent quarter, currencies took a bite out of earnings.
The company spent $1 buying Dollar Shave Club and may buy Jessica Alba’s Honest Co., a maker of natural laundry detergent. It seems that Unilever likes to grow through acquisitions. Take a known brand name from an entrepreneur and then add it to the company’s multibillion marketing and logistics platform. You come up with a nifty idea, and we’ll buy it from you and take it global.
The Dollar Shave Club is one of the all-time great marketing moves. The premise was to belong to the club for $3 a month. The concept attracted 3.2 million subscribers. Gillette, the leader in razor blades, has seen its market share fall from 71% to 59% in the last six years. This is a great way for Unilever to increase its share of the personal products business. Here is a link to an article in the Harvard Business Review.
Have you ever tasted the famous Marmite? Another Unilever product. The company raised prices of Marmite recently and caused quite a stir in the U.K. When the company raised prices by 10%, Tesco pulled the product from shelves and caused a huge spike in sales. Unilever relented.
One concern I have for Unilever and other mega-cap food companies is the fact that they do not have much of a presence at Aldi and Lyttle. I’ve written many times on these two well-run grocery chains. The two are killing the competition in Britain and will probably do the same in other markets too. The two chains have many of their own private label brands, not the big-name brands that the Unilever’s and Nestles of the world carry.
The shares have gotten pummeled with Brexit and the run in with Tesco. If you like mega caps, it’s not a bad time to buy. Unilever is a great consumer products company doing business in every country, probably even North Korea and Antarctica. The stock is a reasonable price, based upon the dividend yield and free cash flow.
Disclosure: We do not own shares of the companies mentioned in this article.
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