Consumer goods are gliding along at a good clip despite the larger global economic malaise and have been enjoying some notable overseas success. New York-based Colgate-Palmolive (NYSE: CL ) is no exception, as it is attempting to conquer new markets.
Global success
The company has expanded its oral care, personal care, and pet nutrition businesses at home and in faster-growing emerging markets. Colgate is now strengthening its focus on its profitable oral care and personal care businesses and is buying Unilever's (NYSE: UL ) Sanex business to boost those offerings.
Colgate is paying $940 million for the business, which operates primarily in Western Europe. Meanwhile, the company has also agreed to sell its Colombian detergent business to Unilever for $215 million. Sanex has a strong presence and positioning in its markets.
But is the deal worth it for Colgate? While Colgate is looking to capitalize on Sanex's brand value, it's not clear how much of an impact the deal will make over the long term.
What are the benefits?
Last year, Sanex was acquired by Unilever as part of a larger purchase from Sara Lee (NYSE: SLE ) . However, European authorities required Unilever to sell the business to settle competition concerns arising from its purchase. Sanex is known for its healthy skin care offerings, and the brand is expected to bring innovative and more valuable products into Colgate's personal care shelf. Personal care comprised 22% of Colgate's revenue in 2010.
The new unit had just $260 million in sales last year, compared to Colgate's total sales of $15.6 billion. Colgate saw total sales rise 1.5% to $15.6 billion in 2010 from the year before.
Now the Foolish question is how efficiently will Colgate be able to generate returns from this transaction? Rising commodity costs are likely to put further pressure on the company's margins, and Colgate needs to play the pricing game strategically. Major economies in Western Europe and the U.S. are still struggling to come out of the economic downturn.
Of course, Colgate needs to continue fending off the challenges that competitors such as Clorox (NYSE: CLX ) , Johnson & Johnson (NYSE: JNJ ) , and Procter & Gamble (NYSE: PG ) pose. But it also needs to focus especially in the markets where future growth will be explosive: primarily South America, Africa, and Asia.
Foolish outlook
The Foolish outlook seems to be covered by the clouds of commodity inflation and stagnant incomes that force consumers to shift their purchasing patterns. Adding fuel to the fire, rising austerity-related concerns in Europe can pose further risks for the company. Nevertheless, it's Foolish to continue watching the company's operations and developments abroad. Meanwhile, let's keep our fingers crossed, hoping for faster economic revival in the developed markets and greater success in the emerging ones.
RSS Headlines
Fool UK