德意志银行--全球美容保健品行业研究报告2008
Beauty and the Beasts
The global beauty market and
P&G's potential
Bill Schmitz Jr
Research Analyst
(1) 203 863 2285
william.schmitz@db.com
Fundamental, Industry, Thematic, Thought Leading
Deutsche Bank Company Research's Research Product Committee has deemed
this work F.I.T.T. for investors seeking differentiated ideas. Here we discuss the
global beauty market and the inorganic transformation that has made Procter &
Gamble the industry leader. We explore how P&G needs to drive its business mix
further towards beauty. We examine key business drivers and use the Olay brand
as a proxy for P&G’s growth potential, which is required for outperformance.
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Fundamental: P&G has emerged as the world’s largest beauty company
Even after about $80 billion of acquisitions, P&G’s global market share in beauty is
still just 13% of a $291 billion industry. P&G and L’Oreal have emerged as the
leaders across various categories. They continue to consolidate the industry, each
forming a unique strategy to capture the outsized growth beauty provides.
Industry: tough global competitors are not just going to roll over
Multinationals and local players alike are fighting for a bigger piece of a growing
pie. L’Oreal, Unilever, Beiersdorf, Estee Lauder, Alberto-Culver and Avon, among
others, are investing heavily in innovation and marketing to stake their claim in
both developed and developing markets. In some markets, this is quickly
becoming a zero-sum game. Also, the cost of competition is as high as it has ever
been. Consumer brand loyalty is waning and the average beauty buyer is shopping
in seven or more channels to find the products she (and increasingly he) needs.
Thematic: the high-margin Olay brand can help P&G “deliver the decade”
If P&G is to sustain 4-6% sales growth and 10% EPS growth through 2010, we
think beauty can sweeten its mix and lift gross margins. Brands like Clairol, Cover
Girl, Max Factor and even Pantene in the US have been slowing. At Olay, though,
innovation and marketing drive consumption and trade-up. A multi-tiered portfolio
sustains growth. P&G’s “trial and repeat” strategy gains shares and gives the
brand a premium image. Viewed against the portfolio’s strugglers, this
underscores the latent promise of P&G’s acquisition-enhanced beauty growth
strategy.
Thought Leading: industry needs beauty growth to outperform the market
Helped by a cyclical rotation of defensive names, the group has seen multiple
expansion as the themes of currency and developing markets captured
incremental investment. To keep the momentum going, organic sales growth
needs to expand 5% or better and 10%+ EPS growth has to be maintained, or
these stocks will be washed away with the shampoo for earlier-cycle groups.
P&G remains a core holding as long as organic sales and margins expand
However, Olay needs to maintain growth and hair care must accelerate to deliver
6% organic segment growth – an essential part of P&G’s overall growth algorithm
and critical to continued outperformance.
Table of Contents
Executive summary ........................................................................... 3
Outlook: amid a changing environment, P&G is adjusting ........................................................3
Valuation ..................................................................................................................................4
Risks ........................................................................................................................................4
The global beauty industry............................................................... 5
P&G’s leading share is just 13% of the overall market .............................................................5
P&G and L’Oreal have emerged as the industry leaders….......................................................6
…but P&G’s growth algorithm has been turned on its side…..................................................6
…and it is not building its beauty business in a vacuum...........................................................7
Still, we see P&G emerging as one of a few key global players ...............................................8
P&G’s beauty transformation........................................................... 9
A historical perspective: how P&G “got its groove back” ........................................................9
P&G’s sizable beauty portfolio: a closer look ............................... 12
Richardson-Vicks and Wella deals: the building blocks ...........................................................12
When mix isn’t so sweet ........................................................................................................14
Skin care case study: Olay.............................................................. 16
An ambitious global repositioning yields a key growth driver .................................................16
Olay trial and repeat analysis...................................................................................................17
International growth potential .................................................................................................20
Hair care case study: Pantene ........................................................ 22
Pantene needs to pick up the slack ........................................................................................22
Colorants case study: Clairol and Wella ........................................ 24
Hair colorants: P&G’s big move to round out its hair care offering.........................................24
PG valuation and risks .................................................................... 26
Exhibits............................................................................................. 27
Table of Figures
Figure 1: P&G has gained 5 pts. of beauty share over the last 5 years, helped by acquisitions .
. . ..............................................................................................................................................5
Figure 2: . . . in a category that has grown at about 5% over the last 9 years ($ in mm)..........5
Figure 3: Global beauty growth/concentration analysis.............................................................5
Figure 4: Historical vs. projected sales growth CAGR ..............................................................5
Figure 5: Forecast beauty category growth by region ($ in mm) ..............................................6
Figure 6: P&G’s beauty acquisition history ...............................................................................9
Figure 7: P&G sales composition 2007 vs. 1990 ....................................................................10
Figure 8: P&G beauty trailing EBITDA multiples .....................................................................10
Figure 9: P&G’s product portfolio ...........................................................................................11
Figure 10: Sources of P&G sales growth: 2000-2007 .............................................................11
Figure 11: P&G beauty sales brand consolidation - % sales, top five brands .........................12
Figure 12: P&G beauty sales by geographic region ................................................................12
Figure 13: Hair care (excluding colorants) remains P&G’s biggest category . . ......................13
Figure 14: . . . with Olay, fragrance and Pantene driving most top-line growth (% of estimated
FY07 beauty growth)...............................................................................................................13
Figure 15: P&G beauty sales by brand 2007...........................................................................13
Figure 16: P&G beauty growth by brand.................................................................................14
Figure 17: P&G segment gross margin mix analysis...............................................................15
Figure 18: P&G geographic gross margin mix analysis ...........................................................15
Figure 19: Olay virtuous cycle .................................................................................................17
Figure 20: Illustrative sales curves of trial and repeat driven volume......................................17
Figure 21: Olay TRD skin care trial and repeat ........................................................................18
Figure 22: Olay share trends – trial vs. repeat.........................................................................18
Figure 23: Sources of share – trial vs. repeat..........................................................................19
Figure 24: Depth of Olay repeat share....................................................................................19
Figure 25: Olay geographic distribution ..................................................................................20
Figure 26: Olay TRD sources of volume .................................................................................21
Figure 27: P&G shampoo market shares have held up well . . . .............................................22
Figure 28: . . . but conditioner shares are down 2.8 pts. from 2004 highs, with softness driven
by Pantene ..............................................................................................................................22
Figure 29: L’Oreal and Unilever have lost share in European shampoo, while P&G share has
remained relatively stable . . . .................................................................................................23
Figure 30: . . .while conditioner share has fallen for the incumbents, Unilever and L’Oreal,
with P&G and other niche players taking share ......................................................................23
Figure 31: US colorants market share data .............................................................................24
Figure 32: European colorant market share trends .................................................................25
Figure 33: Professional hair care market share trends ............................................................25
Figure 34: Forward PE relative to market................................................................................26
Figure 35: Forward PE relative to peers..................................................................................26
Figure 36: Personal care transaction comps...........................................................................27
Figure 37: Global beauty transaction comps ($ in mm, except per share amounts) ...............30
Figure 38: Global consumer staples organic growth trends – top-line growth remains robust
despite challenges ..................................................................................................................30
Figure 39: P&G quarterly segment sales growth derivation....................................................31
Figure 40: P&G Quarterly segment data .................................................................................32
Figure 41: P&G Quarterly income statement ($ in mm)..........................................................33
Figure 42: P&G quarterly balance sheet and cash flow summary ($ in mm)...........................34
Figure 43: P&G Annual income statement ($ in mm)..............................................................35
Figure 44: P&G annual balance sheet ($ in mm) .....................................................................36
Figure 45: P&G discounted cash flow analysis ($ in mm) .......................................................37
Figure 46: P&G Annual cash flow and economic profit ($ in mm) ..........................................38
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