Unfortunately, Unilever (LSE: ULVR) and Reckitt Benckiser’s (LSE: RB) sales growth is slowing. Unilever reported at the end of the third quarter that the company’s sales had only expanded 2.1%, down from the 3.7% reported in the first half. While Reckitt reported third quarter like-for-like net revenue growth of 2%, a rate of growth far below expectations.
There’s no denying that these figures were disappointing. However, investors should not give up, the growth story at Unilever and Reckitt is only just beginning.
Lofty targets
When Unilever’s current CEO, Paul Polman, took the reins during 2009 he laid out ambitious plans double the group’s sales to €80bn, or £63bn in the short term. For full-year 2013 Unilever reported total sales of around €50bn. So Paul Polman is still far away from reaching his long-term target. City analysts expect the company to report sales of around €50bn once again this year.
But Unilever has plenty of dry powder that can be used to drive growth. At the end of the first half the company had just over €4bn in cash and net debt of €9.5bn. Not bad for a company with nearly €50bn of assets.
With this cash behind it, Unilever is able to look for bolt-on acquisition opportunities.
One such opportunity is US-based Energizer, best known for its battery arm. In addition to batteries, Energizer has built up a larger personal care division, which has allowed the company to maintain its growth rate despite falling battery sales.
Of course, Unilever is not interested in Energizer’s battery business but luckily Energizer is currently working on plans to split itself in two. City analysts believe that there is a 50% chance of Unilever acquiring Energizer’s personal care spin-off, which could fetch around €8bn.
Other potential acquisitions include Colgate-Palmolive, although with a price tag of $62bn this could be out of Unilever’s reach. Church & Dwight is another possible candidate, with a price tag of $10bn the company is is a more realistic target. Church & Dwight manufactures Arm & Hammer toothpaste and Trojan condoms.
Strategic pruning
On the other hand, Reckitt is set to benefit from the strategic pruning of Procter & Gamble. P&G is seeking to offload about 90 to 100 brands whose sales have been declining for the past three years. 23 of these brands have sales of between $1bn and $10bn, so they’re not small divestments.
P&G has kept quiet about the brands it has placed on the chopping block but analysts believe that the company is likely to be considering the sale of laundry brands, Fab and Trojan, Perma Sharp shaving blades and Fekkai hair products among others. These products would fit well into Reckitt’s existing portfolio.
Foolish summary
Unilever and Reckitt may not be everyone’s cup of tea but the two consumer goods giants have achieved impressive rates of growth over the past few decades and it seems as if this growth is set to continue. Unilever is still targeting sales €80bn in the near-term while Reckitt has plenty of opportunity to growth through the acquisition of unwanted brands being offloaded by P&G.
