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