Procter & Gamble - Unilever: Two Companies Going in Different Directions
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Two global giants in the consumer good sector — Unilever (NYSE: UL) and Procter & Gamble (NYSE: PG) have taken completely different roads this first quarter of 2012. While Unilever has been beating revenue and earnings expectations and continues to move up in value and in good standings with investors and analysts, P&G lowers its future EPS forecasts for the year while barely missing revenue—falling out of favor with analysts and investors. Both have solid recognizable name brands, why have they both taken different paths?
Misfortune?
One argument could be said for misfortune that one faces and the other did not. One of the big factors in P&G’s present struggle is with its business in Venezuela. The government was introducing consumer price controls in the country. Neither manufactures nor retailers knew what would be mandated. Two events lead to a huge drop in projected sales. First of all, retailers stopped buying products for a period of time because they did not want to be caught holding inventory at a higher price than they would be able to sell it at. Secondly, after price restructuring was announced, prices on some products dropped as much as 25%. This obviously ate into profits and earnings in a big way.
Western Europe not a Factor
Both companies announced struggles in Western Europe because of the economy. For P&G, a 0.5% reduction in volume from a (year to year) quarterly measurement was not a surprise. The best Unilever could say was that it remains a challenge because of low consumer confidence and intense competition. With Great Britain and Spain just announcing being in the midst of double-dip recessions, this is not unexpected so it is not a factor between them.
Restructuring Timing?
While Unilever was once a ‘chaser’ in the industry, it has already reinvented it. They work by what they uniquely call a “Sustainable Life Program” whereby sustained growth is the only way to do business while it uses its products to create a positive social impact. Such programs and products are part of its continued success. As an example, the LifeBouy line has a “Global Hand-washing Day.” Started in 2009, it is like a brand on a mission attempting in its own way to help promote children’s health. The whole concept is centered on linking itself to social good. This is followed up by a product line called Clini-care 10. The point is, the company has an identity, knows where it is going, and communicates that to the globe!
At the same time, it was just in February that P&G announced a restructuring plan to cut 5,700 jobs and $10 billion in costs by the end of fiscal 2016. While one has a mission the other is just slimming down.
Price Increases & Regional Reactions
Both companies increased prices, but it may be the reaction of various regions that have made the difference between the two. This may be the main culprit. While cost cutting measures may be seen in EPS, sales are the real determining factor to success. While P&G saw a slight increase in dollars, its market growth has decelerated on a volume level. Even Unilever grew in North America by 5%, but saw a negative volume growth.
The key might lie in the fact that P&G increased prices and it competition did not. Price increases were given as a result of commodity prices increasing. But the company had to contend with a few competitive actions not anticipated on price increases. Here are a few examples:
- In the U.S.auto dish category, they had an 80% increase which they had to reverse from last summer as sales dried up quickly.
- Huge price gaps developed in theU.K.laundry market they had to correct as the economy slowed way down.
- In U.S. Oral Care, we are facing an unprecedented level of promotional spending. Fact channel reports for our primary competitor shows 67% of their volume moving on promotion, an increase of 16% versus prior year levels
- In the Mexico laundry detergent category, one of our international competitors has been promoting at extremely high levels
- Besides Venezuela, these were difficult transitions P&G faced that Unilever did not have to deal with on a scale as large as P&G did.
Even through the two global giants have highly recognizable brands; certain events in different marketing regions of the globe as well as P&G’s restructuring plans have led to both companies taking different directions in the value of stock at the present. We are confident Procter & Gamble will turn itself around just as Unilever once did and became a leader instead of a laggard. But for now, P&G has fallen out of favor with investors and analysts while Unilever is still of interest to them.
The Motley Fool has no positions in the stocks mentioned above. johnmylant has no positions in the stocks mentioned above. 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.
