Feminine care a battleground for P&G and Kimberly Clark
Kimberly Clark (NYSE: KMB) and Procter & Gamble (NYSE: PG) dominate the global feminine care market. P&G is the world leader in feminine care with a 35% market share followed by Kimberly Clark’s Kotex and Depend brands with a combined 29% of the market. Kimberly Clark has pursued a product innovation strategy, while P&G has concentrated on boosting sales volumes, particularly in emerging markets.
Strategic differences notwithstanding, we don’t anticipate any major shift in their relative market share in coming years. Our analysis follows below.
Relative importance
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Female incontinence is a more important business for Kimberly Clark than it is for P&G. We expect Kimberly Clark’s feminine care business to contribute more than 28% to our $74.48 estimate for its stock price. P&G sells a much broader range of products, and we expect that feminine care will contribute less than 10% to our $83.81 estimate for its stock value.
Kimberly Clark has pursued an innovation strategy, releasing new products such as Depends underwear and the U product line under Kotex. By contrast, P&G has concentrated on building sales volume for existing products. The company is looking to expand its global consumer base by 1 billion, primarily in Asia.
The global feminine care market is expected to grow at an annual rate of 4.5% during our forecast period, from $14 billion in 2009 to about $18 billion by 2016, the end of our forecast period. Much of this growth is expected to come from the emerging markets of South East Asia, Africa and Latin America, due to their higher population growth rates and rising disposable income levels. As more women join the workforce in these markets, more of them are trying sanitary napkins over cloth.
Of the two companies, P&G has the stronger presence in emerging markets. Kimberly Clark still gets 53% of its sales from North America. P&G’s U.S. sales are about 41% of total sales.In an effort to build its Asian feminine care business, P&G has launched several trial programs in Southeast Asia and has been trying to persuade more women in countries like India to try sanitary napkins over cloth.
Portfolio Effect
- Advertising scale economies and opportunities for cross-promotions across product categories.
- P&G broad portfolio of products gives it access to more stores and other distribution outlets, which tends to boost volume.
- We expect Kimberly Clark and P&G to maintain their relative market shares and post comparable revenue growth in the feminine care sector during our forecast period.
- At the end of 2009, the two companies both reported EBITDA margins of about 24%. Going forward we expect P&G’s volume strategy to result in higher margins as fixed costs get spread over more inventory and a bigger customer base.