UL is a standout performer in the consumer products space right now.
That said, in many ways, it’s really not all that unique a company in the industry.
But it has been moving aggressively to shift its business into new areas, and that could set it apart over the long term.
Unilever (NYSE:UL) is one of the world’s largest consumer products companies. It competes with giants like Procter & Gamble (NYSE:PG), Colgate-Palmolive (NYSE:CL), and Kimberly-Clark (NYSE:KMB). But recently there’s been something different going on at Unilever… And it makes this global giant stand out from the pack.
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The consumer products category was supposed to see massive growth come from emerging markets. Reaching out into these up and coming countries was expected to push the top- and bottom-lines of consumer products giants higher and higher for years into the future. Things don’t always work out as planned, though. Since the global recession between 2007 and 2009, what was supposed to happen, what was expected, didn’t pan out.
For example, Procter & Gamble made an aggressive push under previous management to grow in emerging markets only to have to pull back when it didn’t lead to top- and bottom-line growth. The move cost the former CEO his job and led to a complete revamp of the company, including the divestiture of a huge swath of businesses so it could focus on just its core brands. Revenues peaked at roughly $84 billion in fiscal 2012, hitting a far more modest $65 billion in the most recent fiscal year. The company is purposefully shrinking, but that’s a statement that it had become too unwieldy and, perhaps, lost its way.
Kimberly-Clark, meanwhile, has as also been making some adjustments to its business. It’s seen its top line dip for three consecutive years, with another drop looking pretty likely as this year progresses. That story pretty much gets repeated at Colgate-Palmolive, too.
The only company that seems to be spinning a different tale is Unilever. It was able to push its top line higher last year after a few weak years. Although this year looks like it might be down from 2015, there’s something going on at Unilever that deserves a closer look.
Consumer tastes are always shifting and changing. And, as such, consumer products companies are pretty much always shifting and changing, too. That’s par for the course in many ways. But Unilever has been a bit more aggressive than peers lately. That’s no so much about buying new brands as it is about challenging the status quo.
For example, Unilever recently paid around $1 billion to buy Dollar Shave Club. This deal was clearly about investing in shaving, but it was more about getting a hold on a disruptive business model. The giants had long controlled the shaving business by selling expensive razors in physical stores. Dollar Shave Club managed to build a substantial direct to consumer business in a short period of time in an industry dominated by incumbents.
The risk here, of course, is that Unilever mucks things up by pushing Dollar Shave Club to be more like Unilever. It’s too soon to tell if that’s going to happen, but if Unilever can actually learn from Dollar Shave Club, perhaps it can push even further into the direct to consumer market with other products. That would be worth a billion dollars and would change the basic model that Unilever and its peers have followed for most of their existence.
The company also bought Blueair this year, a maker of air purifiers. That’s expected to be a compliment to its water purifying business. This is a bit outside of the box I’m trying to describe here, but you can see how the two businesses dovetail with each other. If you care about the impurities in your water, then you might just care about the impurities in the air you breathe. It’s a bolt on deal that doesn’t push the boundaries of the company sales wise, but certainly lets it leverage its existing knowledge of a key market… and its massive distribution machine.
Then there’s the more recent agreement to buy Seventh Generation, a maker of natural cleaning products. Cleaning products clearly aren’t new, but the consumer shift toward products without dyes and other artificial things is something different. And, assuming Unilever lets the company continue its growth without messing up its approach, it gives Unilever a way to compete with more entrenched competitors that are still focused on «old» brands.
Yes, older brands have value. But Unilever’s willingness to buy a new, expanding brand could help support top- and bottom-line growth while competitors try and adjust their old brands to the changing tastes, effectively trying to stem customer defections. Unilever is effectively buying into the new brands to which customers are defecting, brands that are quickly establishing themselves as real competitors.
Unilever is also supposedly in talks to buy Honest, another up and coming brand that’s quickly establishing itself as an industry threat. Like Seventh Generation and Dollar Shave Club it’s doing something different. And the discussions, with no way to predict if something will happen, are right in line with the recent deals that Unilever has actually completed.
The common thread
In the end, all of the consumer products companies are working to adjust to a world that didn’t turn out to be what they had hoped. They are doing it their own ways. The one that stands out most to me is Unilever. It’s not just shifting, it’s trying to learn new things. That’s a mindset difference that should interest investors looking to own a company for a very long time. Back that up with recent results that have been largely better than peers, and you start to see why you might prefer to own this giant over competitors.
Fuente: Seeking Alpha
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