How You Can Benefit From the Diversification of These Cleaning Companies
Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The American Cleaning Institute includes more than 100 manufacturers that are producing nearly 90% of all cleaning products. This industry has an annual market of nearly $30 billion in the U.S. The companies in this industry are adopting various strategic steps to deepen their foothold in other growing markets, while also diversifying cleaning product portfolios and acquiring other fast growing business segments.
Let's take a look at three U.S. based cleaning product companies that are continuously driving investors’ interest through innovative and strategic moves.
Launching new product and enhancing business opportunities
Ecolab (NYSE: ECL) is the leading cleaning and sanitation maker, and its Global Institutional segment contributes nearly 30% to its revenue. The company’s quick service business, which is part of its global institutional segment, reported 13% year-over-year revenue growth in the first quarter ended in March 2013. In order to grow this segment, it launched the “Kay Heated Soak Tank program” in June 2013 for quick service restaurants, or QSR. This program will efficiently remove the carbonized soil from cookware, as carbon build-up spoils the food quality. This will help QSRs to save time, labor, and cost in cleaning cookware. The company's global institutional segment, which is the second largest revenue contributor, is expected to grow to $4.25 billion this year from $4.06 billion last year.
Additionally, in April 2013, Ecolab successfully completed the acquisition of Champion Technologies for $2.3 billion. Champion is a specialty chemical manufacturing company, which is used in oil and natural gas wells. It serves drilling companies in North America and generates around 70% of its revenue from the industry. With this acquisition, Ecolab will deepen its presence in the chemical market and enhance its exposure to the increasing North American energy market. The company will generate cost synergies of $50 million this year, which will increase to $150 million annually by the end of 2015. In addition, EPS will accelerate by more than 16% to $3.45 in 2013 where Champion will contribute $0.07 to EPS in 2013.
Focusing on improving financial efficiency
With an acquisition capacity of around $1.6 billion in fiscal year 2014, Prestige Brands Holdings (NYSE: PBH) is working to enhance its over-the-counter, or OTC, segment. Therefore, it recently acquired Care Pharmaceuticals, an Australian-based marketer and distributor of OTC healthcare products. Care made a name for itself through its product innovations and brand building by continuous enhancement of its product portfolio. It has strong presence in Australia, New Zealand, and the Asia-Pacific region, which will help Prestige grab growth opportunities in fast-growing geographic regions. The integration of Care's brands in its portfolio and their operational capabilities will accelerate the EPS growth by nearly 10% to $1.64 in fiscal year 2014 and $1.81 in the next fiscal year.
To improve its capabilities for future merger and acquisition deals, the company continuously looks for debt reduction. In the last fiscal year ended in March 2013, it repaid the debt of nearly $154 million. The quick repayment of debt enables it to continue to be active and disciplined in acquisition deals. This approach has resulted in strong track record of integration, innovations, and growth of acquired companies' brands. Due to its previous acquisitions, it will generate cash flow of around $121 million, which it plans to use to reduce debt by more than $100 million, to $863 million in this fiscal year.
Long-term dividend payment history
Church & Dwight (NYSE: CHD), with a diverse and growing product range, diversified into vitamin supplements. In late 2012, it acquired Avid Health, the leader in the gummy form of vitamins and supplements, for $650 million. With this acquisition, the company has diversified and upgraded its product portfolio, capturing a new growth platform with this fast-growing segment of the vitamins and supplements category. In the first quarter ended March 2013, Avid contributed 5% to EPS and shipments rose by 15% with 38% point-of-sale growth. The company achieved this growth by aggressive marketing, spending $10.1 million to promote Avid's brand. Despite this, the company’s selling and administrative expense, as a percentage of sales, reported a year-over-year decrease of 0.20% due to the higher revenue contribution from Avid. The company will further take advantage of Avid’s distribution network and support functions, which will result in cost saving of $15 million in 2014.
The company is well known for its long dividend history and declared its 449th regular quarterly dividend of $0.28, or annualized dividend of $1.12, in May 2013. Its dividend has shown the growth of 387% over the last five years with a payout of nearly 40%. The company anticipates strong cash flow of $456.5 million this year. It will maintain the long-term dividend history and continue to return cash to its valuable investors in the future too.
Through the acquisition of Avid, Church & Dwight expects superior growth in its EPS of around 15%, and its strong dividend payment history will continuously drive investors' interest. Ecolab's new program will enhance its presence in the QSR industry, enhancing Global Institutional segment revenue. Additionally, by acquiring Champion Technologies, it will deepen footholds in the North American chemical industry. With the acquisition of Care Pharmaceuticals, Prestige Brand will enhance its OTC drug segment and capture fast growing regions. Moreover, its debt reduction step will improve its capabilities for further M&A deals.
A buy is recommended for these three stock for long-term growth prospective.
The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.
Madhukar Dubey 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!