Why Reckitt Benckiser Group Plc Is A Better Bet Than Unilever plc

unilever2Unilever (LSE: ULVR) (NYSE: UL.US) and Reckitt Benckiser (LSE: RB) are two giants of the consumer goods sector. However, over the past few years their outlooks have changed significantly. Indeed, as Reckitt has continued to grow profit and revenue at a steady rate, Unilever has been struggling. Unilever was actually, the first consumer goods company to warn on emerging market sales growth. The company has been working hard to drive emerging market growth ever since.  

Further, Unilever expects that the company’s organic growth will slow to 3.4% next month, down from 3.7% as reported in the second quarter. This is around half the level of growth reported during 2012.

On the other hand, Reckitt is not warning of a similar slow-down and the company is looking to boost shareholder value via asset disposals.

Value creation

Unilever’s mantra has always been to grow through acquisitions, a strategy that the company is currently using to boost its presence within emerging markets. Reckitt on the other hand is considering a different strategy.

Reckitt’s management recently invited analysts to a presentation detailing the company’s plans for growth and outlook. The majority of analysts came away pleased with management’s plans for the company, as it appears as if the group is looking to unlock value for investors.

City analysts believe that Reckitt is looking to divest non-core, low margin, underperforming brands such as Air Wick, Calgon and Woolite, to free up cash that could either be used to fund acquisitions, or returned to investors.

What’s more, as Unilever’s growth slows, Reckitt’s organic sales growth continues to impress.

Slowing growth

All you need to do it take a look at the second quarter trading statements of Unilever and Reckitt to see that Reckitt continues to grow while Unilever is struggling.

Excluding Reckitt’s pharmaceutical division, during the first half of the year the company’s revenue expanded 4% at constant currency. Adjusted net income for the first half increased by 7% in constant currency.   

Meanwhile, Unilever’s sales during the first half only expanded 3.7%, although net income jumped 12% thanks to a boost from one-off items.

Still, the really telling numbers within both Unilever’s and Reckitt’s results were the profit margins reported by both companies. Unilever reported an operating margin of 14% during the first half of this year, unchanged from the previous year. However, Reckitt’s operating margin actually expanded by 0.40% to 20.8% as the company cut costs to boost profitability.

These figures tell me that Unilever is sacrificing profitability for revenue growth by discounting its products heavily. Reckitt on the other hand is able to improve margins as company’s products are still popular with customers. 

Two great picks

Even though Reckitt's growth is outpacing that of Unilever, both companies have many attractive qualities that make them perfect picks for any portfolio.

Indeed, these qualities enabled Unilever to gain a place in the Motley Fools list of 5 Shares You Can Retire On! All five of these opportunities offer a mix of robust prospects, illustrious histories and dependable dividends.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.