Life as we know it is very different from a century ago, as are the companies that grew up in the Gilded Age. Familiar names such as Procter & Gamble (PG 0.68%), PepsiCo (PEP 3.62%), and Corning (GLW -0.03%) have all been around since the 1800's. These companies have not only withstood the test of time, but they've also evolved into multinational powerhouses that continue to dominate their respective industries today. Here's how these companies are innovating today and why they should continue to reward shareholders for many decades to come.
From soap sales to consumer goods conglomerate
It's not by chance that Procter & Gamble has grown from a small soap and candle upstart in 1837 into the world's largest consumer goods company today. The Cincinnati-based business has product innovation to thank for its rich history of success. Procter & Gamble enforces what it calls "innovation-centered recruiting." This has helped the company discover and retain top talent including more than 1,000 employees with Ph.D.s today.
Over its 177 years in business, P&G has pioneered new product categories such as disposable diapers and Crest teeth-whitening strips. Procter & Gamble creates groundbreaking products and brands at its 26 innovation centers around the world. Last year, the company opened the largest private research facility in Singapore, which is now home to more than 250 advanced research laboratories.
It's this level of focus on innovation that has led to P&G's unmatched portfolio of leading consumer brands. Moreover, the company now boasts 23 brands that each generate sales of at least $1 billion annually. While management is in the process of selling some of its under performing brands, it shouldn't have a significant impact on the company's future earnings because P&G is keeping its core brands, which account for more than 90% of its revenue.
In addition to its global network of innovation centers, Procter & Gamble spends roughly $2 billion on research and development each year. This is more than sustainable considering P&G generated fiscal year 2014 net sales north of $83 billion. Ultimately, strong cash flow generation and the company's commitment to innovation mean there is more than a zero percent chance that Procter & Gamble remains a household name for the next hundred years.
Cooking up profits for 117 years
PepsiCo is another old-timer to get high marks for innovation. The soda and snack giant that consumers know and love today actually got its start in 1898. The company later merged with Frito-Lay in 1965 and has been rolling out fan favorites in the beverages and snacks businesses ever since. Today, Pepsi has research centers in key markets across the globe including Brazil, China, Germany, India, Mexico, Russia, the United Arab Emirates, the United Kingdom, and the United States. Since 2009, Pepsi has employed a global team of clinicians, epidemiologists, and food scientists to work on creating fresh products. These investments in product development have helped make PepsiCo one of the top performing food and beverage companies on the planet today.
Moreover, PepsiCo ramped up its research and development spending to $718 million last year, up from $552 million in fiscal year 2012. The company is also using its research and development cash to get ahead of the health trend these days by finding new ways to increase the nutritional value of its snacks, according to a recent shareholder letter. In fiscal year 2014, Pepsi's management said innovation accounted for more than 9% of the company's net revenue.
Source: PepsiCo.
Pepsi has also innovated how it interacts and markets its products with consumers. The company's "Do Us a Flavor" contest, for example, pulled in more than 14 million submissions last year. The contest lets consumers nationwide submit ideas for the next tasty Lay's potato chip flavor for a chance to win $1 million and have their winning flavor sold in stores throughout the country. This is a creative way to get consumers involved in the creation process while also promoting Pepsi's Lay's brand. From increased research and development spending to innovative marketing campaigns, PepsiCo should continue to dominate for many more decades to come.
160 years of innovation
As far as world-class research and development capabilities go, it doesn't get much better than Corning Incorporated. Corning's innovative roots date back to the 1800's when Thomas Edison commissioned the company to make the first glass light bulb. You may also be surprised to learn that Corning's science and technology lab, which opened in 1908, was one of the first research and development facilities in the United States.
Fast-forward more than 100 years to today where Corning is a leading manufacturer of specialty glass and ceramics. The company's competitive advantages can be seen in its rich portfolio of patents and network of award winning scientists today. Corning was awarded 400 patents in the U.S., as well as more than 750 patents abroad last year. Not to mention, Corning's pedigree of researchers includes four National Medals of Technology winners, which is one of the most prestigious awards given by the President of the United States to innovators.
Given the company's treasure chest of patents and trademarks, it's not surprising that Corning continues to increase its R&D budget. Corning invested more than $700 million in R&D last year, up from $613 million in fiscal year 2013. This dedication to innovation has transformed Corning from a light bulb producer into a global powerhouse that now dominates five key markets including display technologies used in LCD TVs, environmental technologies, optical fiber used in telecommunications, life sciences, and specialty materials such as its Gorilla Glass that is used in consumer electronics like smartphones today.
Investing in the future
Procter & Gamble, PepsiCo, and Corning have more in common than their old age. Each of these companies continues to innovate by heavily investing in R&D and creating a culture that fosters growth. As a result, investors can look forward to many more years of innovation and reliable shareholder returns from these oldies but goodies.
