Unilever (LSE: ULVR) (NYSE: UL.US) kicked off the earnings season this morning with a solid set of results.
The consumer goods firm reported a 2.9% rise in underlying sales and an 11% increase in core earnings per share.
Although exchange rate fluctuations meant that sales in Unilever’s reporting currency, the euro, fell by 2.7%, and earnings only rose by 2%, I tend to ignore such currency issues, as they normally even out over time.
Two big numbers
One of Unilever’s key attractions for investors is the firm’s consistent profitability. Last year was no exception — Unilever’s operating profit margin increased by 0.4% to 16.5%, continuing a multi-year run of growth that has seen the firm’s operating margin rise from 12.6% in 2009.
The other number that makes investing in Unilever such a stress-free experience is the firm’s free cash flow. This totalled €3.1bn last year, almost completely covering the €3.2bn Unilever paid in ordinary dividends.
Emerging market woes?
One concern ahead of today’s results was that slowing growth in emerging market economies might have hurt Unilever’s sales.
Today’s results confirmed that there has been an impact. Although sales rose by 4.3% in emerging markets, profit margins were flat, due to currency issues and softer conditions in China and Africa.
I’m not too concerned by this, given the strong sales growth, but it is worth monitoring over the next year.
Has the dividend been cut?
Today’s final results confirmed the amount that will be paid for the fourth-quarter dividend in euros, pounds and US dollars. The amount UK shareholders will receive is 21.77p per share.
Sharp-eyed readers will notice that this is 7% less than the 23.38p paid in the first quarter of last year.
However, this is not a cut — the fall is due to Unilever’s dividend being declared in euros. As the pound has strengthened against the euro over the last year, the value of the dividend to UK shareholders has fallen.
This effect will probably reverse at some point, but it’s worth understanding that the drop is only due to adverse exchange rates.
Is Unilever still a buy?
Unilever’s shares have fallen by more than 2% this morning, following the publication of the firm’s results.
There’s no doubt that Unilever shares are not cheap — trading on 20 times 2015 forecast earnings, big gains are unlikely in the next couple of years.
But the real attraction is the long-term income and growth potential this company offers. All over the world, consumers buy Unilever products, often with unswerving brand loyalty.
