Bernstein Research has called on Beiersdorf to scrap its 2010 market share and margin targets, or risk damaging the business.
The warning comes a week after Beiersdorf published preliminary results for 2008 that showed sales growth slipping in the final quarter.
Preliminary 2008 data shows end of year slowdown
The owner of the NIVEA brand said sales growth was 7.5 per cent for 2008 but Bernstein Research said fourth quarter results were much weaker than expected.
Organic growth in the quarter was 4.2 per cent, which was the poorest figure since Q3 2005. Management admitted that Beiersdorf’s adhesives business Tesa was badly exposed to the deteriorating economic situation and its faltering sales figures had put a brake on overall growth.
However, Bernstein Research said the slowdown in the consumer segment, which grew 6.8 per cent in the quarter, was of greater concern because it is the ‘true driver’ of the Beiersdorf business.
Beiersdorf has repeatedly emphasized plans to focus its energies on the beauty and skin care businesses, which are clustered together under the consumer division. To this end, the company has been selling off brands that lie on the peripheries of its business such as health support firm Futuro, which was sold to 3M earlier in December.
Targets for market share and margins
By focusing on the core of the business Beiersdorf aims to capture a 5.5 per cent slice of the global market for personal care products by 2010. The company has also committed itself to the target of increasing its EBIT margin from the current level below 12 per cent to 15 per cent.
Bernstein Research says the company should reduce these targets or risk damaging the business.
Senior analyst Andrew Wood said the weak ending to 2008 could be a first sign of sustained weakness in 2009 and that in light of the slipping sales figures, the market share target was looking highly optimistic. The promise of higher advertising and promotion (A&P) spending from L’Oreal would also make the task harder.
Simultaneously achieving the 15 per cent margin target would be achievable with a big cut in A&P spending but that would carry a price in terms of top-line growth.
Despite recommending lower targets, Bernstein Research said Beiersdorf had outstanding brands with strong market positions.