Unilever (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 companys 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
Unilevers mantra has always been to grow through acquisitions, a strategy thatthe company is currently using to boost its presence within emerging markets. Reckitt on the other hand is considering a different strategy.
Reckitts management recently invited analysts to a presentation detailing the companys plans for growth and outlook. The majority of analysts came away pleased with managements 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.
Whats more, as Unilevers growth slows, Reckitts 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 Reckitts pharmaceutical division, during the first half of the year the companys revenue expanded 4% at constant currency. Adjusted net income for the first half increased by 7% in constant currency.
Meanwhile, Unilevers 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 Unilevers and Reckitts 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, Reckitts 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 companys 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.
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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.
