Unilever vs. Procter & Gamble: A Clash of Consumer Giants

Investors may find Unilever (NYSE: UL) to be a more favorable option compared to its rival, Procter & Gamble (NYSE: PG). Currently, UL stock is priced at 19x forward earnings, while PG trades at 26x. This suggests an opportunity for UL to close the gap as it experiences growth across several product categories. Below, we’ll explore the reasons behind our forecast for Unilever’s potential outperformance over the next three years, analyzing aspects such as historical revenue growth, profitability, and valuations.

1. Procter & Gamble Outperformed Unilever Recently

Over the past few years, UL shares have barely budged, rising from approximately $55 in early January 2021 to around $60 today. In contrast, PG’s stock has surged about 45%, moving from $125 to $180 during the same timeframe. The S&P 500 index, by comparison, has increased by 60% over that period.

Unilever has struggled, with negative returns in each of the last three years: -8% in 2021, -3% in 2022, and a flat 0% in 2023. Even though PG’s returns varied—21%, -5%, and -1%—they nonetheless outshone UL’s performance. The S&P 500 delivered returns of 27% in 2021, -19% in 2022, and 24% in 2023, illustrating that both UL and PG lagged behind the index in 2021 and 2023.

Many stocks have struggled to consistently outperform the S&P 500, including major players in the Consumer Staples sector and famous tech companies like Google, Tesla, and Microsoft. In contrast, the Trefis High Quality (HQ) Portfolio, which includes a selection of 30 stocks, has beaten the S&P 500 every year during that same period, providing better returns with less volatility.

2. Revenue Growth Favors Procter & Gamble

Unilever’s revenue has only grown at an average annual rate of 0.9%, rising from $62.4 billion in 2020 to $63.9 billion in 2023. Procter & Gamble, on the other hand, enjoyed sales growth of 3.4%, increasing from $76.2 billion in fiscal 2021 to $84.0 billion in fiscal 2024, which ends in June. This difference can partly be attributed to recent movements in the USD. Notably, P&G’s reported sales in Euros show a 5.7% average annual growth rate.

Unilever segments its revenue into three categories: Personal Care, Food & Refreshments, and Home Care. Sales in Personal Care and Home Care have performed well, but Food & Refreshments have lagged. Most recent results show a 4.3% increase in sales for Unilever over the nine-month period ending September 2024, supported by 2.9% volume growth alongside 1.3% gains in pricing.

While pricing increases benefited Unilever in the past, long-term growth shouldn’t rely on these strategies alone, as consumers may opt for cheaper alternatives if prices continue to rise. This makes the volume growth at Unilever an encouraging sign for the future.

Procter & Gamble has also seen revenue growth fueled primarily by price increases rather than volume gains. The company reported a 4% rise in total organic sales for fiscal 2024, thanks to a 4% increase in pricing, while volume remained unchanged. The Fabric & Home Care segment, contributing around 35% of P&G’s revenue, has been a key driver of its growth, though other segments like Beauty and Baby Care are performing less robustly.

P&G’s Beauty segment has experienced challenges, including a 5% drop in sales last quarter. Skin Care products, in particular, fell by 20% due to decreased volume and poor mix. A lack of demand for prestige beauty products in China presents ongoing hurdles. Additionally, P&G is losing market share in the baby diaper category.

3. Procter & Gamble Is More Profitable with Lower Financial Risk

Unilever’s adjusted net margin rose from 8.6% in 2020 to 10.4% in 2023. Meanwhile, P&G maintains a strong 19.4% net income margin for fiscal 2024, consistent with its performance in 2021.

In terms of finances, P&G holds a stronger position. Its debt has increased from $32.8 billion in fiscal 2021 to $36.2 billion now. Conversely, Unilever’s debt has decreased from $33.6 billion in 2020 to $31.8 billion in 2023. With P&G’s market capitalization being three times that of Unilever, its debt-to-equity ratio is much lower at 9%, compared to Unilever’s 23%.

P&G’s cash reserves have grown from $10.3 billion to $12.2 billion over the last three years, while Unilever’s cash has decreased from $6.8 billion to $4.5 billion. As a proportion of assets, P&G’s cash is at 10%, compared to 6% for Unilever.

Overall, P&G appears to excel in both debt management and cash reserves.

4. The Summary

In summary, P&G shows better revenue growth, higher profitability, and lower financial risk, which rationalizes its higher valuation. However, when considering future potential, we find Unilever may be the stronger choice, driven by notable volume growth across various categories. P&G faces challenges, especially in its beauty and baby care sectors, while Unilever displays resilience through the growth of its Dove brand and well-being products. Additionally, Unilever’s Home Care segment has seen commendable mid-single-digit volume growth this year.

Both stocks trade at multiples above their historical averages, with UL at around $60, pricing it at 19x expected earnings of $3.11 per share, and PG at about $180, equating to 26x expected earnings of $6.94 per share. Given these high valuation multiples, potential upside appears limited for both stocks in the near term. Nevertheless, investors might achieve better long-term gains by selecting UL over PG.

As we forecast Unilever might outperform P&G in the next three years, it is also beneficial to assess how Procter & Gamble’s Peers perform against key industry metrics. For valued comparisons across various industries, refer to Peer Comparisons.

[1] Returns as of 11/27/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.