Unfortunately,Unilever(LSE: ULVR) andReckitt Benckisers(LSE: RB) sales growth is slowing. Unilever reported at the end of the third quarter that the companys sales had only expanded2.1%, down from the 3.7% reported in the first half. While Reckitt reported third quarter like-for-like net revenue growth of2%, a rate of growth far below expectations.
Theres no denying that these figures were disappointing. However, investors should not give up, the growth story at Unilever and Reckitt is only just beginning.
When Unilevers current CEO, Paul Polman, took the reins during 2009 he laid out ambitious plans double the groups sales to 80bn, or 63bn in the short term. For full-year 2013 Unilever reported total sales of around 50bn. So Paul Polman is still far away from reaching his long-term target. City analysts expect the company to report sales of around50bn once again this year.
But Unilever has plenty of dry powder thatcan be used to drive growth. At the end of the first half the company had just over4bn in cash and net debt of 9.5bn. Not bad for a company with nearly50bn of assets.
With this cash behind it, Unilever is able to look for bolt-on acquisition opportunities.
One such opportunity is US-basedEnergizer,best known for its battery arm. In addition to batteries, Energizer has built up a larger personal care division, which has allowed the company to maintain its growth rate despite falling battery sales.
Of course, Unilever is not interested in Energizers battery business but luckily Energizer is currently working on plans to split itself in two. City analysts believe that there is a50% chance of Unilever acquiring Energizers personal care spin-off, which could fetch around 8bn.
Other potential acquisitions includeColgate-Palmolive, although with a price tag of $62bn this could be out of Unilevers reach.Church & Dwightis another possible candidate, with a price tag of $10bn the company is is a more realistic target. Church & Dwight manufacturesArm & Hammer toothpaste and Trojan condoms.
On the other hand, Reckitt is set to benefit from the strategic pruning ofProcter & Gamble. P&G is seeking to offloadabout 90 to 100 brands whose sales have been declining for the past three years. 23 of these brandshave sales of between $1bn and $10bn, so theyre not small divestments.
P&G has kept quiet about the brands it has placed on the chopping block but analysts believe that the company is likely to be considering the sale oflaundry brands, Fab and Trojan, Perma Sharp shaving blades and Fekkai hair products among others. These products would fit well into Reckitts existing portfolio.
Unilever and Reckitt may not be everyones cup of tea but the two consumer goods giants have achieved impressive rates of growth over the past few decades and it seems as if this growth is set to continue. Unilever is still targetingsales 80bn in the near-term while Reckitt has plenty of opportunity to growth through the acquisition of unwanted brands being offloaded by P&G.
What’s more, the defensive qualities of Unilever and Reckitt have impressed our analysts so much that they believe the two consumer goods giants should have a place in every investor’s retirement portfolio.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of Unilever. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.