Consumer Goods Makers Show Diverging Sales Trends
31 January 2009 - 7:01AM
Dow Jones News
Makers of tissue, garbage bags and soap are all feeling the pain
of weaker consumer spending, although some may be getting pinched
more than others.
Friday, detergent and diapers maker Procter & Gamble Co.
(PG) cut its sales projections for the fiscal year, pushing the
stock down 5%. The Cincinnati giant's results came just one day
after Colgate Palmolive Co. (CL) beat earnings expectations and
said it would meet Wall Street's forecasts for 2009.
Reports from the two companies and other competitors suggest
that even within consumer staples the greatest pressure is being
felt by companies with more discretionary portfolios or bigger
exposure to private label competitors. The trend highlights just
how much cash-strapped consumers are trading down even on daily
goods and products that have relatively low price points.
Procter & Gamble in recent years has put fresh focus on
higher-end products - like fragrances - making parts of its
business more vulnerable to cut backs in discretionary spending.
The company's brands include names like CoverGirl cosmetics and
Olay creams. Last year, the maker of Tide detergent and Crest
toothpaste made a deeper push into the high-end beauty segment with
the purchase of luxury hair-care company Frederic Fekkai & Co.
The company also sells premium fragrances through tie ups with
brands like Hugo Boss.
"Procter's product line as they've made acquisition has become a
little more discretionary," said Walter Todd, a portfolio manager
at Greenwood Capital Associates, which holds shares of both P&G
and Colgate. He said he thinks Procter has more exposure to private
label and to North America than Colgate.
Todd says if had to pick one of the two stocks at the moment he
would be "more inclined (toward) Colgate at this point than
P&G." Procter & Gamble's shares are down 10% for the year
and Colgate has lost 4%.
Another large consumer staples company, Kleenex tissue maker
Kimberly-Clark Corp. (KMB), reported a drop in net earnings amid
softer sales of products like paper towels, a segment where cheaper
private label brands have been strengthening in the recession.
Cheaper private label, or store branded, products have gained
share in many categories during the recession.
"P&G is in more categories than Colgate that are more
susceptible to private label, like batteries," said Caris & Co.
analyst Linda Bolton Weiser.
Colgate sells in segments like bodywash and toothpaste that are
relatively immune to private label penetration, said Bolton Weiser.
By contrast, Kimberly Clark and P&G sell products like paper
towels and diapers that tend to be more susceptible to private
label.
P&G said Friday that private label shares in its categories
across North America and Western Europe have continued to increase
modestly, but are up less than 1% and that its own market shares
are stable.
Bolton Weiser also pointed to a strong performance by another
consumer product company, personal care products maker
Alberto-Culver Co. (ACV). Alberto-Culver - which sell affordable
brands like VO5 haircare products - recently exceeded Wall Street's
earnings estimates for its fiscal first quarter.
Still, P&G said on a conference call Friday its beauty
business is holding up quite well in the current environment
relative to others in this industry. The company said volumes in
its retail hair care business grew low single-digits with a
broad-based growth across all its major brands, including Pantene.
But its cosmetics volume declined, and although the company
continues to build share in prestige fragrances, volume fell in
that segment as well.
"Our markets in aggregate continue to grow. There has been some
contraction in discretionary categories such as fine fragrances.
Some consumers are trading down, but our strategy of offering
consumers a range of choices within a product category is working,"
said P&G Chief Financial Officer Jon Moeller.
-By Anjali Cordeiro, Dow Jones Newswires; 201-938-2408;
anjali.cordeiro@dowjones.com
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