Consumer Goods: Information You Must Know
Federico is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As an investor in the consumer goods space, I learn there is nothing more relevant for consumer goods companies (CGC) than market share. As CGC businesses are based on distribution, their fixed costs per unit of volume that they sell goes down sharply as they gain market share. Here I post an updated market share trend review for three of the most relevant consumer goods companies in the world.
This beauty products company continues to be increasingly attractive
L’Oreal (NASDAQOTH: LRLCY.PK) has strongly kept gaining market share driven by an outstanding performance in hair care as a function of the successful launch of L’Oreal Paris-Advance Haircare. Market share gains in shampoo (+1.70%) and conditioner (+1.74%) have helped underpin group share gains of 0.70% in the US market.
Outgrowing its categories, L'Oreal continues to surprise on the positive side. In fact, management reported a 6.3% organic growth during the first quarter, continuing the healthy trend seen last year (+7%).
Trading at 2014 21 times its price-to-earnings ratio and paying a 2.2% cash dividend yield, L'Oreal is the ultimate champion in the beauty industry.
A giant under pressure
Unilever (NYSE: UN) is resisting pressures from many fronts. The giant's sales growth slowed all along 2012 and the first quarter of this year due to weakness in the food business, partially offset by good growth in its home & personal care (HPC) sales. Unluckily for Unilever's investors, this trend has been maintained throughout the second quarter with food sales continuing to decline by -6.5% as the category growth weakens by only -0.3%. Hence, this CGC giant is losing overall share in the US (0.75%) with food categories as the main culprits. The bad news does not end there, as the HPC business is growing below the two-year trend.
Unilever trades at 2014 16.5 times its price-to-earnings ratio and pays a 4% cash dividend yield. I believe that you can find better alternatives for the same price in the CGC space.
As I mentioned in the beginning, market share and pricing drive the whole CGC industry. Some companies such as L'Oreal are performing extremely well and deserve a price premium while others, like Nestlé, are successfully working on solutions to their problems to keep up with the market. On the other hand, some giants like Unilever need to rework their strategies since they seem to be losing in attempts to solve their market share troubles. If you are going to invest in CGC companies, first look at market share and pricing performance. Ultimately, this is the only way you have to asses management's performance.
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