Enhance Your Portfolio With These FMCG Companies
Ranu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Despite challenging macro-economic conditions, the global fast moving consumer goods, or FMCG, industry has grown consistently over the last few years due to continuous engagement in innovation and expansion moves. Three FMCG companies have strong potential for long-term growth due to their strategies to capitalize on industry growth.
Strong foothold in OTC products
The over the counter, or OTC, healthcare business is Prestige Brands (NYSE: PBH) main strength. It accounts for 86% of the company's total revenue. Products like Luden, Chloraseptic, and Clear Eyes lead its North America OTC healthcare market. It announced the introduction of four new products in fiscal year 2014, which include Dramamine for kids, regional launches of BC Cherry Headache Powder, Goody’s Headache, and PediaCare squeezable packets. In fiscal year 2013, Prestige Brands' OTC business gained 0.4% market share, and, with the introduction of these new products, this growth is likely to continue.
Prestige Brands’ recent acquisition of Care Pharmaceuticals will solidify its presence in the international OTC healthcare market. Care, owns the multiple OTC medications and has strong presence in Australia, New Zealand, and the Asia-Pacific region. Prestige has enormous potential for long-term growth in the international market as it currently generates only 2.7% of the total revenue from markets outside of North America. This acquisition is expected to increase EPS growth by nearly 10% to $1.64 in fiscal year 2014 and $1.81 in the next fiscal year.
Additionally, Prestige has a strong history of actively paying debt. After completing a large deal with GlaxoSmithKline, management reduced debt by 13.32% from $1.12 billion in 2012 to $962.3 million at the end of fiscal year 2013. With free cash flow of $127.3 million in hand, the company can cut its debt to $863 million in this fiscal year.
A solid growth and dividend player
Church & Dwight (NYSE: CHD) is one of the top diversified manufacturers in FMCG. Last year it acquired Avid Health, the leading manufacturer of the gummy form of vitamins and supplements, for $650 million. Church & Dwight spent $10 million on the promotion of Avid’s brands. As a result, in the first quarter, Avid Health added 5% to Church Dwight's EPS growth and shipments were up 15% with 38% point-of-sale growth. Integration allows Church & Dwight to benefit from Avid’s Lil' Critters, which is the top player in the $200 million children's vitamin market. Church & Dwight has the opportunity to penetrate the adult gummy market as gummies presently represent only 3% of the market. The company plans to turn Avid into a power brand by using its relationship with retailers to increase the brand’s shelf space.
Church & Dwight has a robust history of increasing dividend payouts. Over the last five years, it has provided a total return of over 120%, delivering a total shareholder annual return of 17%. In May, it declared its 449th regular quarterly dividend of $0.28, or annualized dividend of $1.12. It has an attractive five-year annual dividend growth rate of 44.96%. Moreover, since 1992 it hasn’t lowered or stopped paying dividends. The company anticipates free cash flow of $1.2 billion in the next three years, which will further support its long-history of dividend payment.
Impressive in business expansion and innovation
Another diversified FMCG company, with unparalleled breadth of product offerings, is Ecolab (NYSE: ECL). Its Global Energy segment accounts for around 27% of total revenue and comprises mainly of operations from recently acquired Nalco, which has strong global presence, and Champion technologies, which has a U.S. focus.
These acquisitions gave Ecolab leadership in the Energy segment. Its energy segment will benefit from strong long-term global trends of progressive rise in supply and demand for oil and gas over the next several decades. The total oil supply from current producing fields will reduce from 80% today to just around 25% in 2035, evidence of need for supply from oil fields yet to be developed or discovered. As it is difficult to reach these types of oil fields, it should increase demand for Ecolab’s key services and products like integrity management, phase separation, scale control, flow assurance, etc. Further, with these integrations, the company expects to generate cost synergies of $25 million in 2013 and $150 million in 2015.
Ecolab has impressive product innovation. It introduced an Antimicrobial Fruit and Vegetable Treatment to reduce the risk of food borne illness outbreaks due to ineffective washing in foodservice operations. To avoid food contamination in restaurants, Ecolab launched Stealth Fusion Fly Light, which is 170% efficient than the standard fly light. Recently, it introduces the Advantis Food Cleaning Program at reduced water temperature. Unlike previous processes, which required sanitation water to heat to temperatures as high as 145 F., Advantis FC effectively cleans protein and fat soils at temperatures as low as 105 to 110 F. The program reduces water heating costs, the refrigeration costs needed to return production areas back to the right temperatures, and reduces the overall downtime necessary for the sanitation shift.
By acquiring Care Pharmaceuticals, Prestige Brands is set to strengthen its position in the international OTC healthcare market. Additionally, its strong debt reduction steps allow the company to continue pursuing product acquisitions.
With the acquisition of Avid, Church & Dwight has strong potential to grab adult and children’s gummy market share. Its strong dividend program is also of interest to investors.
By acquiring Nalco and Champion Technologies, Ecolab will enjoy solid cost synergies. Its innovative products and programs will further aid the company to gain an upside.
The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.
Ranu Devi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!