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All Contents © 2019The Kiplinger Washington Editors
By Will Ashworth
| May 7, 2018
Recently, Estee Lauder Companies Inc (EL) appointed two women to its board bringing the number of women serving to eight, just shy of 50% of the 17-person board of directors.
The typical Fortune 500 board has 11 directors, but given Estee Lauder is a family-controlled company with four Lauders on the board, it needs a larger group to ensure there are enough independent directors.
It’s not surprising that Estee Lauder, where 75% of its employees and 95% of its customers are women, would be pro-gender equality.
However, a quick look at Estee Lauder’s stock performance in the past year — it’s up 16% year-to-date through April 24 and 72% over the past 52 weeks — suggests it’s not only a great company, but it’s also one of seven consumer goods stocks to buy and hold forever.
To make this list a company must have a $2 billion market cap and an operating margin of at least 15%.
Prices and data are from the original InvestorPlace story published on Apr. 26. Click on ticker-symbol links in each slide for current prices and more.
Estee Lauder, one of the world’s largest cosmetics and skincare companies, is also one of the world’s best family-controlled businesses.
Founded by Estée Lauder and her husband Joseph in 1946, it’s grown into a global business with $11.8 billion in annual sales generated by more than 25 brands operating in over 150 countries.
The Lauder family owns approximately 40% of the equity and 87% of the votes. As I said, Estee Lauder is a family-controlled business.
In the second quarter ended December 31, 2017, Estee Lauder grew revenues 14% (excluding foreign currency) to $3.74 billion with operating profits of $710 million, 15% higher than a year earlier.
In the first six months of the year, revenues and operating profits grew 16% and 23%, respectively.
Estee Lauder’s grown operating profits in eight out of the last ten years. It’s a big reason EL stock has delivered an annualized total return of 21% for shareholders over the last decade.
EL stock is a beauty of an investment.
Although Apple (AAPL) stock has taken it on the chin in 2018, down 3% year to date through April 26, it doesn’t have the world’s largest market cap for nothing.
Most of the negative spin facing Apple these days has to do with the iPhone X’s poor sales, which some speculate could see the smartphone maker exit the ultra-premium end of the market.
I don’t believe that for a second and neither does my colleague Brad Moon who recently discussed what Apple is likely to do in the coming months.
“Don’t expect Apple to abandon that ultra-premium market,” Moon wrote April 23. “No-one knows for certain what Apple is planning for 2018, but the smart money right now is on a less expensive LCD-based iPhone X lookalike, a new version of the iPhone X and an iPhone X Plus — that’s likely to either hit that same $999 starting price, or go even higher.”
While sales numbers of the iPhone X haven’t blown the doors off smartphone revenues, it is still a very profitable phone and the last time I looked, earnings are what drive stock prices higher, not revenues.
With the services end of its business growing by double digits every quarter, Apple’s revenue streams are becoming more balanced, not less — and that’s a very good thing for AAPL stock in the long term.
Brown-Forman Corporation (BF.B) is best known for making Jack Daniels Tennessee whiskey and many other fine spirits and wine.
What you might not know is that like Estee Lauder it’s also a family-controlled company with the Brown family and its various branches controlling more than 50% of the voting shares.
Founded by George Gavin Brown in 1870, like Estee Lauder, it’s grown into a global spirits powerhouse with annual revenues of $3 billion and almost $1 billion in operating income.
In March 2017, I suggested that Brown-Forman consider buying Boston Beer Company Inc (SAM) as a platform for buying other craft beer makers and then repeat the process with whiskey, tequila, vodka, etc.
That hasn’t happened but it might not need to given how well Brown-Forman’s business is performing in fiscal 2018. Through the first nine months of the fiscal year, revenues are up 9% over last year with operating income increasing by 11%.
For those who like dividends, Brown-Forman’s increased the annual dividend 34 years in a row.
Dr. Pepper Snapple Group (DPS) is currently in the middle of a transformational merger with Keurig Green Mountain, the makers of the Keurig single-cup coffee systems and Green Mountain Coffee Roasters coffee brand. The merger sees DPS shareholders receive a $103.75 per share special cash dividend while also retaining 13% of the merged Keurig Dr. Pepper.
Together, the company will have $11 billion in annual revenue. It expects the merged entity to generate $600 million in annual synergies by 2021. Keurig Dr. Pepper plans to use the company’s strong cash flow to pay down some of the $16.6 billion in debt it will have post-merger to bring net debt below three times EBITDA.
Why is this a good thing for DPS shareholders?
As the company is currently constituted it faced an uphill battle against the big soda brands. Keurig’s owner, JAB Holding, will use the combination as a platform for growth acquiring smaller brands that consumers seem to prefer these days.
One thing’s for sure: Standing still as the third player in a two-horse race was ultimately going to be DPS’s undoing. This merger gives it a better chance of battling the big boys.
Church & Dwight (CHD) stock is having its worst year in over a decade down more than 8% year to date through April 25.
That’s great news if you already own CHD stock and want to buy more or you’ve never owned its stock but want to be a part of one of the best run consumer goods companies anywhere on the planet.
Back in 2016, I marveled at Church & Dwight’s perfect record, a record that’s in danger of being broken if it continues to stay in negative territory for the remainder of the year.
Fortunately, the company has a simple plan for delivering market share, which I wrote about in April 2016.
“Church & Dwight’s formula for delivering market share growth is a combination of three things: creating innovative new products and product extensions (think Arm & Hammer cat litter), increasing how much it spends on marketing for its power brands (company literature suggests it’s one of the top 20 advertisers in the U.S.) and then pushing hard to increase distribution, which generally translates into higher revenue.”
Simple, but not easy. Church & Dwight’s ability to execute its plan is what sets it apart from its peers. Buy now while CHD is on sale.
If there’s an underdog stock in the world of consumer goods, Lululemon Athletica (LULU) has got to be it.
First, the company promoted Christine Day to CEO — she joined LULU from Starbucks Corporation (SBUX) as head of retail operations in January 2008 — to work her magic in June 2008.
Unfortunately, Day stepped down as CEO in June 2013 after the company had several quality control issues put into question the brand’s integrity.
It then hired Laurent Potdevin, former CEO of Burton Snowboards, in December 2013. Potdevin did a good job improving the company’s quality control and corporate image along with its profitability but was forced to resign in February after it was revealed he’d been dating an employee and had created a toxic, unprofessional work environment.
Now undergoing the third CEO search in a decade, investors eagerly await the board’s hiring decision.
Although there are many potential candidates, I’m sure executive chairman Glenn Murphy and the rest of the board will take its time hiring the right person to take the company on its global expansion.
While it’s had its fair share of controversy, Lululemon remains Canada’s biggest retail apparel success story. The future, in my opinion, looks very bright.
Abhijit Tembhekar via Flickr
As a kid, I can remember a school trip to the Billy Bee honey factory in Toronto. McCormick & Co. (MKC) acquired the Canadian company in 2008 for $75 million. At the time of the acquisition, Billy Bee controlled 60% of branded honey sales and provided half the private label honey in Canada.
It was a major blow to see one of my childhood memories acquired by the big U.S. company. However, McCormick’s managed to retain the Canadian angle by using only Canadian honey in Billy Bee products.
Last August, McCormick’s paid $4.2 billion to buy Reckitt Benckiser’s (RBGLY) food division, which includes Frank’s Red Hot sauces and French’s condiments. It was the largest acquisition in the company’s history.
McCormick is no longer just a spice company.
In the company’s latest quarterly report, revenues and operating profits grew 15% and 38%, respectively. It expects to grow revenues and operating income in 2018 by 14% and 33%, respectively. It also stands to benefit from a lower effective tax rate due to the Trump corporate tax cut.
I expect McCormick stock to continue to provide above-average returns for shareholders for the foreseeable future.
This article is from Will Ashworth of InvestorPlace. As of this writing, Ashworth did not personally hold a position in any of the aforementioned securities.
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