Market reaction to P&G’s potential beauty brands divestment
Following the New York Post‘s June 15 report that Coty, Inc. (COTY) will purchase three lines of business from Procter & Gamble (or P&G) (PG), COTY stock rose sharply. On June 16, the stock rose more than 19% to $31.08. The next day, it rose further by 0.5% to $31.22. Both days set new records for COTY stock. PG stock also rose by 1.3% to $79.10 on June 16.
About a week later, on June 23, COTY stock touched an all-time high of $31.80. The stock is up by nearly 54% year-to-date. PG stock is down 12.4%. The SPDR S&P 500 (SPY) and the Consumer Staples Select Sector SPDR Fund (XLP) are up by 3.2% and 0.3%, respectively, as of June 23.
A higher US dollar has taken its toll on these large consumer packaged goods (or CPG) multinationals. Sales declined year-over-year in the last three quarters for both P&G and CL. In 1Q15, the higher dollar reduced CL’s reported sales by 10%, negating improvements in both volumes and pricing. Sales have fallen in the last two quarters for KMB.
PG’s volumes for certain segments, particularly beauty, have been pressured primarily by a more competitive market environment.
In the next article, we’ll see why beauty products companies are outperforming household product companies.