Strategic Movements: May 2018

Duracell and Energizer: When Profits, Not Revenue, Drive Decisions

After executives and shareholders spun Duracell out of P&G, and separated Energizer from Edgewell Personal Care into two competing stand-alone companies, both firms shifted focus from market share gains to profit gains. Collectively, the two brands of disposable batteries hold nearly 80% of U.S. market share. Results: 8.2% price increase over same time last year, beating the overall household segment inflation rate of 1.8%.  Did the price hike hurt performance?  NOPE:  Energizer reported $273 million in profits for year ending September 30, 2017, up 65% over year earlier. Duracell posted $82 million over 2017, up from $89 million losses for the year prior.  This is what happens when you focus on profits, not revenue, in decision making.

Want Affordable Housing? Fix Zoning

Up for Growth National Coalition, an organization supported by BRIDGE an affordable housing builder— along with numerous property development firms—released its report on the U.S. housing market.  Findings: Household construction is near a 60-year low and prices are rising at 5.8% per year, far outstripping the inflation rate. If demand is there, where is the supply?  Research indicated a difficulty to build.  California state Senator Scott Wiener’s suggestion: Allow developers to build taller buildings near public transit…even if local zoning doesn’t permit it. Against the wishes of anti-gentrification groups, more high-rise and high-density housing, not less, is what is needed to mitigate housing price increases.

PPG: Missed Opportunity or Converting Crises into Opportunity?

PPG Industries Inc. is facing rising cost of raw materials in making paint.  Standard strategic response: drive a price increase and encourage the industry to follow.  PPG Response:  layoff or fire 1,100 people.  Was this a missed opportunity? Was the response necessary?  First quarter revenue was up 9% over same-time last-year to $3.8 billion.  Profit too was up from $334 million to $353 million.  From a revenue and profit perspective, the response doesn’t look right.  But this may be looking at the move from the wrong lens.

The paint industry is threatened with restructuring in the form of mergers and acquisitions. Michael H. McGarry, CEO of PPG, may have taken the raw-cost-increase crises and used it to justify an opportunity for labor-cost reduction. This could preserve PPG’s independence, or make acquisitions and avoid the threat of being acquired. In any case, this move seems more aligned with a short-term financial-performance decision-making criterion rather than a long-term health-of-the company viewpoint.  Other criteria, such as customers, employees, and the larger community, appear to have been subordinated.  Who are the stakeholders of a company?  How should capitalism be redefined to make it work better for all?

Kraft Heinz Displays Pricing Power

Kraft Heinz Co. saw global revenue roughly hold steady around $6.3 billion while profits rose 6% to 89 cents per share due to better pricing and new product launches. Shares rose 4%.  Investors like innovation and pricing power—and the two usually go together.

Walmart Powers eCommerce Investments with India’s Flipkart

Walmart took a 75% stake in Flipkart for about $15 billion. Flipkart was recently valued at $11.6 billion in April 2017.  Nice premium.  Big value of Flipkart: they know how to compete online.  Jet.com wasn’t good enough for Walmart.  Now it is going abroad.  Good thinking. We are all on this planet together.