The trend is clear. Again and again, FTSE 100 companies are banking ever racier profits in emerging markets, while revenues stall closer to home, especially in Europe. Unilever (LSE: ULVR) (NYSE: UL.US) is the latest happy traveller, taking a fruitful trip to Asia and Latin America, joining companies as diverse as GlaxoSmithKline, Vodafone, IMI, Experian, Serco Group and many more. Does this boost the case for investing in Unilever, or should we be worried about weakness on the home front?
It's easy to see why UK-listed companies do better beyond the flailing eurozone and flatlining UK. In the UK, quarterly GDP growth of 0.3% is hailed as a new economic dawn, while 7.5% annual Chinese GDP growth is viewed as the end of the world. These diverging growth expectations are reflected in Unilever's first-quarter update. Underlying sales in Europe melted a miserable 3.1% but rose a joyful 10.4% in emerging markets and 12.3% in Latin America. Emerging markets now contribute 57% of group revenues and rising, while Europe contributes around a quarter. Total underlying quarterly sales growth was 4.9%, as Unilever's strong away form made up for struggles at home.
For me, emerging market exposure is now the best reason to invest in solid FTSE 100 blue-chip suchs as Unilever. More than two billion people around the world use its food and household goods products every single day, making it a strong, safe way to tap into hundreds of millions of youthful, brand-aware consumers with cash to dispose of. Emerging markets delivered double-digit growth for the eighth successive quarter, says chief executive officer Paul Polman. "This strong performance reflects the impact of our successful innovations, the introduction of our brands into new markets, improved product quality and competitive in-market execution."
On the wings of Dove
Product diversification also helps. Dove hair products are big in Mexico. Clear is strong in the US, Axe is getting sharper. Lifebuoyclini-care 10 now retails in Indonesia, Ghana and Kenya. The Vaseline brand is cleaning up in South East Asia with a range of facial washes. This is a company that can sell toothpaste to China, margarine to Turkey, fabric conditioner to Thailand, tea to Russia and Magnum ice cream to just about everybody.
Europe was solid enough, and would have been even better but for the cold start to the ice cream season. Last year's strong first quarter made this year's comparative figures look worse. Management was happy enough to hike the quarterly dividend 10.7% to EUR0.269. It yields 3.5%, a little above the FTSE 100 average, covered 1.7 times.
The market soon shrugged off any lingering disappointment with the results. Investors have their eyes on the long-term and the long-haul, which explains why Unilever trades at 20 times earnings. The share price is up 32% over the past 12 months, against 12% for the FTSE 100, so it's a bit pricey. But Unilever always looks pricey. With emerging markets on its side, investors hoping to buy Unilever on the cheap may have to be very, very patient.
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