Home Care: Quarterly Statement Q3 2016 Sunshine or Sunburn?

Further Downward Revision in Q3

Q3 sees the outlook for home care worsen slightly over what was seen in Q2, with a US$800 million downward revision softening to a US$1.1 billion downward revision, with Brazil and the US alone accounting for 50% of this figure.

All about North America

While the Q2 Quarterly Statement covered the problems associated with Latin America, with a focus on Brazil, Mexico and Argentina, this Q3 Quarterly Statement focuses on North America, and the US in particular.

Focus on the US

The US economy does not appear to be in the worst shape, but the home care industry does not seem to getting much joy here, even though the US population is forecast to expand by 1% annually over 2015-2020, which should be good news for volume and unit sales, but is not expected to translate into value growth.

All washed up?

Value sales in the key US laundry care category are forecast to decline by just over US$800 million as set out by the Passport Baseline, with the Q3 update seeing a further US$80 million downward revision. This highlights the increasingly commodity nature of the US laundry category, liquid detergents in particular.

Give me sunshine

Into this somewhat unusual environment came one of the biggest recent acquisitions, with Henkel purchasing Sun Products in a US$3.6 billion deal in June 2016. As a result of the acquisition, Henkel will become the second largest laundry care manufacturer in retail value terms in North America. It will benefit from scale, but will also inherit a raft of somewhat underperforming brands.

The road ahead

While there are many positives for Henkel, the medium term options for the company will be interesting to observe, particularly regarding how the company will use its new scale to ramp up expansion of its Persil brand and insulate itself from a category which continues to exhibit declining unit prices, driven by US retailers’ penchant for discounting.