EUR 850.00 For Business Accounts Only

Morningstar | Beiersdorf's Underwhelming Medium-Term Guidance Reflects Realities of Competitive Categories

We think Beiersdorf can achieve above-industry-average net sales growth in the medium term as a result of white-space geographic opportunities and the potential to take share in adjacent categories, particularly for Nivea. It lags peers on margins, however, and we think a renewed focus on efficiencies will be needed to close the gap. The company's newly announced strategy, C.A.R.E.+ is likely to take margins in the opposite direction, at least in the short term. Beiersdorf will invest a further EUR 70 million to EUR 80 million annually in what management claims will improve the long-term competitiveness of the business. We believe this supports our thesis that the customer acquisition cost is increasing in the consumer products sector, particularly in mainstream categories. Nevertheless, the strategy leaves room for optimism that margins can improve. Nivea has several expansion opportunities. Geographically, it is underindexed in the United States, Brazil, and China. Facial care, bath and shower, and men's products are categories in which Beiersdorf's share languishes in the low single digits in most markets and in which we think the Nivea brand would fit.Beiersdorf's more than 15.3% consumer segment EBIT margin in 2018 indicates that margin progress is being made, but room for improvement remains. Close competitors L'Oreal and Estee Lauder, for example, generate EBIT margins around 3 percentage points higher. However, the greatest gap lies in Beiersdorf's outsize spending on advertising. Beiersdorf's marketing and selling expenses were 34% of sales in 2018, well above L'Oreal's 30%. When stripping out discretionary costs such as advertising and research and development expenses, Beiersdorf appears to be a fairly efficient operator, with lower nondiscretionary costs per employee than most of its household and personal care, or HPC, competitors (although it appears to be less efficient on a cost-per-factory basis). The firm has some potential to optimise procurement, but we expect the marketing cost leverage to be the key margin driver. The strategy to grow sales above the industry, therefore, seems appropriate for a brand with plenty of white space.