Is Unilever a Better Pick Than Procter & Gamble?

Is Unilever a Better Pick Than Procter & Gamble?

While Procter & Gamble (NYSE: PG) has historically performed well, Unilever (NYSE: UL) could offer better long-term potential. Unilever’s stock trades at a more affordable valuation of 19 times forward earnings compared to P&G’s 26 times. With Unilever showing volume growth across its key categories, it’s positioned to narrow the gap with P&G. Below, we break down why Unilever might outperform P&G in the coming years based on factors like revenue growth, profitability, and valuation.

1. Performance: P&G Outpaced Unilever in the Past

Stock Returns: Over the last few years, P&G has delivered better returns than Unilever. From early 2021 to now, P&G’s stock rose 45% (from $125 to $180), while Unilever’s stock grew modestly, moving from $55 to $60.

Market Comparison: Both stocks have underperformed compared to the broader S&P 500 index, which gained 60% over the same period.

Recent Struggles: Unilever has faced challenges, with its stock losing value in 2021 (-8%) and 2022 (-3%). P&G has also seen inconsistent returns, such as a 21% gain in 2021, followed by a 5% drop in 2022.

2. Revenue Growth: P&G Leads, But Unilever Shows Promise

P&G’s Growth: P&G’s revenue has grown at an annual average of 3.4%, rising from $76.2 billion in fiscal 2021 to $84 billion in fiscal 2024. This growth has been largely driven by pricing increases rather than higher sales volumes.

Unilever’s Growth: Unilever’s revenue increased by just 0.9% annually (from $62.4 billion in 2020 to $63.9 billion in 2023). 

However, when measured in Euros, the company’s revenue grew at 5.7% annually, highlighting the impact of currency fluctuations.

Volume Gains: Unilever’s recent performance is encouraging, with a 4.3% sales increase for the first nine months of 2024, driven by a 2.9% rise in volume and a 1.3% pricing gain. This shift toward volume growth signals a more sustainable strategy compared to relying solely on price hikes.

Category Highlights: Personal care and home care have been strong segments for Unilever, supported by brands like Dove.

Challenges for P&G: P&G’s beauty and baby care segments are facing headwinds. Beauty sales, particularly in China, dropped 5% in the last quarter, with skincare falling 20%. Baby diapers are also losing market share, impacting overall growth.

3. Profitability and Financial Health: P&G Stands Out

Profit Margins: P&G remains more profitable, with a 19.4% adjusted net margin in 2024 compared to Unilever’s 10.4%.

Debt Levels: P&G has a stronger financial position, with debt representing just 9% of its equity compared to Unilever’s 23%. Additionally, P&G has grown its cash reserves from $10.3 billion to $12.2 billion over three years, while Unilever’s cash holdings declined from $6.8 billion to $4.5 billion.

Financial Cushion: P&G’s higher cash-to-asset ratio (10%) gives it a better buffer than Unilever (6%).

4. Valuation and Future Outlook

Current Valuations: Both stocks are trading above their historical averages, suggesting limited near-term upside.

Unilever: Trading at 19 times forward earnings ($3.11 per share), slightly above its three-year average of 18 times.

P&G: Trading at 26 times forward earnings ($6.94 per share), compared to its three-year average of 24 times.

Outlook for Unilever: Unilever’s focus on volume growth, supported by strong segments like home care and well-being products, positions it for better long-term gains. While P&G has seen stronger revenue growth and remains more profitable, challenges in its beauty and baby care segments could weigh on its performance.

Bottom Line: Why Unilever Could Outperform

While Procter & Gamble offers stronger profitability and a more stable financial position, Unilever’s shift to volume-driven growth across categories like personal and home care gives it an edge for long-term potential. For investors seeking robust returns over the next three years, Unilever appears to be the better bet.