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Shares in Nivea maker drop as CEO says sector in 'turmoil'

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today Feb 27, 2019
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Shares in Beiersdorf dropped more than 10 percent on Wednesday after the maker of Nivea skin cream warned that its operating margin would fall in 2019 as it invests to compete with niche brands that are disrupting the sector.




Beiersdorf was the latest consumer goods company to reset profit expectations for 2019 after German rival Henkel and Colgate-Palmolive last month, and following Kraft Heinz's writedown last week.

"The consumer goods industry... is in turmoil," new Beiersdorf CEO Stefan De Loecker, who took over on Jan. 1, told a presentation to analysts. "I need to act now."

De Loecker said the future of mass-market labels was being challenged by the rise of small, disruptive brands as consumers increasingly expect more personalised products and services.

Warren Buffett said on Monday that his Berkshire Hathaway Inc overpaid in the 2015 merger that created Kraft Heinz, noting retailers such as Amazon and Walmart are making it harder for brands to push through price hikes.

Jefferies analyst Martin Deboo said the recent warnings added to evidence that the "cost of growth" was increasing in the sector.

Shares in Beiersdorf tumbled 10.3 percent by 0828 GMT, with peers including Henkel, Reckitt and Unilever also weaker.

Beiersdorf said late on Tuesday that it expects group sales growth of 3-5 percent in 2019, down from 5.4 percent in 2018, and an operating margin of 14 to 14.5 percent in its core consumer business unit, down from 15.3 percent in 2018.

To counter the slowdown in sales, Beiersdorf will invest up to 80 million euros (68.74 million pounds) a year in its consumer business, which makes Nivea and other brands including Eucerin.

The additional spending on opening new markets, innovations, digitisation and training should boost organic growth in this area to 4-6 percent by 2023 and the operating margin to 16-17 percent.

 

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