What’s Going On Here?
Procter & Gamble (P&G) – maker of Charmin and Pantene – impressed investors with the soft sell on Tuesday when it reported quarterly results.
What Does This Mean?
Last week’s consumer staples love-in gave way this week, when Germany’s Reckitt Benckiser said it had sold fewer health and cleaning products than it hoped, and lowered its sales forecast for the rest of the year. P&G’s sales of similar products, on the other hand, helped the company deliver higher revenue and profit than expected last quarter – and led it to raise its annual forecast. And that proved to be true of American rival Kimberly-Clark in its Tuesday update too.
Why Should I Care?
For markets: Not all consumer staples are created equal.
“Defensive” companies share similar characteristics – namely the predictability and consistency of demand for their products. And as consumer staples look to raise product prices (and profits), their product ranges may offer clues about their “pricing power”. For example, your loyalty to Nestlé and Unilever might be reinforced by frequent purchases of your favorite food brands, price hikes or not. But infrequent purchases of, say, cosmetics – where new brands are vying for your attention – might mean you’re less likely to accept higher prices, and may look elsewhere for cheaper, more ethical alternatives.
The bigger picture: When beauty turns ugly.
On Monday, beauty company Coty – owner of brands like Rimmel and Wella, as well as P&G’s jettisoned perfume, haircare, and makeup business – said it planned to sell off some of the businesses in its “professional” segment. Coty’s struggled of late due to its reliance on middle-of-the-road brands, rather than the high-end cosmetics that consumers have actually been buying. Challenges like these aren’t uncommon: Reckitt said on Tuesday it’s also having trouble integrating Mead Johnson – an $18 billion purchase from 2017 – which was partly to blame for its weaker-than-expected update.
