J&J Consumer Products Business Steers Toward Acquisitions For Growth
This article was originally published in The Rose Sheet
Executive Summary
Firm continues to be outspoken about its M&A appetite, recently closing deals for Vogue International and NeoStrata, among others. Neutrogena and Aveeno were top performers for J&J’s Consumer business in the second quarter, the company says.
Johnson & Johnson sees "a continuous stream of additions" as a likely accelerator for growth across its consumer product business.
The firm has been outspoken about its appetite for M&A of late, and the same held true during its fiscal 2016 second-quarter earnings call.
"Whenever we're looking at inorganic growth opportunities, we look at tuck-ins, we look at mid-size deals, we'll look at large deals," Chairman and CEO Alex Gorsky said July 19. But while J&J’s is open to all opportunities, “we're going to be very disciplined. We're going to be very decisive about how we do it."
He noted that J&J “can create the most value" with tuck-in acquisitions.
“If you look over the last 20 years, I think we've done about 124 deals,” Gorsky said. “I think there've been about 13 or so that have been over a billion. The majority of these have been smaller and frankly … I think the strategy has worked really well. And it's something that we'll continue to pursue.”
The New Brunswick-based consumer and health giant closed two consumer-brand acquisitions in the second quarter – Hipoglos, the top diaper-rash cream brand in Brazil, and NeoStrata Co. Inc., a dermocosmetics brand focused on alpha hydroxy acids for anti-aging.
Just following the quarter’s July 3 end, J&J closed its $3.3bn cash purchase of Vogue International LLC, which manufactures and distributes salon-heritage and natural-inspired hair care, including the OGX and Proganix brands, and other personal-care products (Also see "J&J Affirms M&A Strategy For Consumer Biz With Vogue International Buy" - HBW Insight, 4 Jun, 2016.).
“We think that those are great additions to our existing portfolio,” he said.
He mentioned Vogue specifically in discussing the kinds of targets J&J prefers and its ambitions for growing small- and mid-sized businesses into globally renowned phenomena.
“There's nothing that we would like more than to take a several-hundred-million-dollar platform like Vogue and create the next multi-billion-dollar platform as we see in things like Neutrogena and others,” Gorsky said.
Already Vogue has been growing at a compound annual growth rate of around 25% in recent years.
The exec noted that Neutrogena was a $300m business when J&J acquired it in 1995, and Aveeno a $30m upstart in 1999 when J&J brought it on board. Now those brands account for $1.5bn and $700m in annual sales, respectively, he said.
Neutrogena and Aveeno were among key growth drivers in J&J’s Consumer division for the second quarter, each credited with double-digit gains.
Both brands have been focusing on innovation and marketing angles that emphasize fast anti-aging and other skin-care results (Also see "J&J Skin Care Continues Apace With ‘Rapid’ Products, ‘1 Week’ Claims" - HBW Insight, 22 Jul, 2016.).
Global Skin Care Up 6.6%
Overall worldwide skin-care sales reached $953m, an increase of 6.6% in reported terms. The result reflects 8.2% growth in the US and a flat performance internationally.
J&J’s oral-care business advanced 3.1% to $403m globally, fueled by new Listerine launches and successful marketing campaigns, the firm said.
Baby care continues to struggle, falling 9.3% to $398m for the quarter as international results were pummeled by foreign exchange rates. J&J also has been battling litigation in the states alleging links between the talc in its iconic Johnson’s Baby Powder and cases of ovarian cancer (Also see "J&J Baby-Care Sales Down With Second Talc Cancer Trial Underway" - HBW Insight, 22 Apr, 2016.).
Meanwhile, OTC sales continue to rebound, led by Tylenol and Motrin, following regulatory and quality control issues in recent years. The division recorded 3.5% growth to roughly $1bn for the period.
J&J’s global consumer sales totaled $3.4bn, down 1.8% compared with the prior-year period. On an operational basis, however, the consumer business increased 1.5%, with US sales rising 2.1% to $1.4bn and international sales inching up 1% to $2bn.
“We're really pleased with the performance that we continue to see in the Consumer group,” Gorsky said. “From quarter to quarter, it continues to improve in not only its core performance but market share and a number of other areas. We feel like the majority of the platforms right now we're actually gaining share.”
He went on: “At the same time, we realize we've got some areas such as baby, such as China, where we need to do a better job and the team is focusing on that in addition to the margin improvement.”