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Household and Personal Products have appreciated recently against the dollar. Since sales great opportunities for the leading firms in the industry United States are predominantly outside of the United States, to expand and significantly increase their revenues. Industry Type (9/6/06) Slow Growth appreciation of foreign currencies increases the Key Indices: S&P Household & Personal Products industry’s profitability. 3. Expenses within the industry are not rising as rapidly (S5HOUS) as in 2005. Although costs of raw materials are still 3. Transportation and supply chain technology is increasing, the increases are starting to slow down Recommendation: Hold improving. The mature companies within the closer to the level of increasing revenues. household and personal products industry are still Description and Summary: finding ways to increase their profitability through Threats: The Household and personal products industry is technological improvements. These trends should 1. Energy prices are very high and could continue to comprised of consumer durables. These products are continue into the future. New technologies in inventory increase. Oil and natural gas prices affect the purchased by virtually every home on a regular basis. management and transportation efficiency should production and transportation of all the products within The industry is a mature industry with major provide a lift to the industry. the industry. Oil and natural gas prices have increased competitors that have existed for a very long time. significantly since 2005. The trend of increasing energy prices could cut into future revenues. Due to the intense competition in the industry and the Weaknesses: industries relationship with large retailers, product 1. Household and personal products companies have 2. Costs for raw and packaging materials are prices are relatively inelastic. The inelasticity of relatively low price negotiability with their retailers. increasing. Since 2005 costs for these materials have product prices causes prices of raw materials, energy, Due to low retail profit margins and intense increased significantly due to higher energy prices and and other expenses for the industry to have a significant competition, price increases traditionally are hard to other costs. effect on the industry’s profitability. come by. This can severely hurt profitability in times of increasing raw material costs and other expenses. Key Valuation Ratios to Watch: International Competitive Structure: Expense ratios are very important in this industry. Due The household and personal products industry is 2. Retailers are reducing their inventories. Walmart, the to the intense competition, companies with the lowest dominated by large multinational corporations. Of the largest retailer of household and personal products, has expense ratios have a significant advantage. 5 largest companies in the industry, sales in North reduced the amount of inventory it holds. This directly America comprise 31-48%. Sales in Europe comprise reduces the sales of most household and personal Key Items to Watch: approximately 30% of the total, while the remaining products companies by as much as 3%. As other Changing energy and raw materials costs are significant sales are scattered throughout the world. retailers try and follow Walmart and reduce inventory to the success of the industry. Oil and natural gas prices expenses, household and personal products companies are the most important prices to watch. The large multinational structure of these corporations could lose even more sales. makes the industry susceptible to changes in foreign Return Performance versus the S&P 500 (in %): exchange and nearly all economies throughout the Opportunities/Trends: 01 02 03 04 05 6YTD world. 1. Recent price increases from household and personal S5HOUS -2.9 1.7 17.9 14.2 6.4 10.7 products have not caused a decrease in sales volume. SPX -11.9 -22.0 28.4 10.7 4.8 9.2 Strengths: This trend could show a great opportunity for the Excess 9.0 23.7 -10.5 3.5 1.6 1.5 1. The large corporations that comprise the bulk of the industry to relieve some of the pressure it faces to GDP 0.8 1.9 2.7 4.2 3.5 1.6est household and personal products industry are very well continually cut costs in order to become more Sources: NetAdvantage, Bloomberg diversified. These large corporations can withstand a profitable. downturn in a specific portion of the industry. The size and diversification of the companies in the industry 2. Expansion opportunities exist in China and other promote very stable yearly growth. growing economies. The large conglomerate firms that dominate this industry have the sound balance sheets 2. The large household and personal product necessary to expand into growing markets. China, companies are multinational. The Euro and the Yen India, and many Eastern European countries provide BM 416, Fall 2006, Analyst: Jason Stewart firstname.lastname@example.org 2006
"30-30 Household and Personal Products 2006F JDS"