EB: Vendor results focus

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With the first round of quarterly results of listed companies now in, how did the office products industry players fare and what are their prospects going forward?

 

In the first of two results round-ups, we take a look at the vendor community.

 

It has been a bit of a mixed bag for the main stationery and office products suppliers in terms of their second quarter results.

 

The standout performance came from the European division of cutting instruments vendor, Acme United, with year-on-year sales up a very impressive 75 percent, but this was very much an exception. Furthermore, Acme’s total company sales for the quarter were around $20 million, making it a relatively small company compared to the likes of giants such as 3M, Henkel, Newell Rubbermaid, etc.

 

According to data from NPD/IRI, the consumer stationery market in the USincreased by 3.5 percent in the first five months of 2010, while research firm GfK indicates that the market in Europe for the same period actually experienced a decline of just over 1 percent. Second quarter figures from NPD for the US market suggest overall sales, both in the retail and delivery channels, to be flat or up in the low single-digits, so the market is hardly on fire in these mature markets.

 

Indeed, companies with the best results were generally those who have more exposure to the so-called emerging markets of Asiaand South America, which have shown more robust growth rates. However, worse-than-expected growth data out of China only this week has highlighted the still fragile state of the world economy and indicates that continued higher sales, even these regions, should not be seen as a given.

 

So, given this economic backdrop, which companies still managed to grow their top lines during the quarter?

 

Interestingly, Jiffy and Bubble Wrap manufacturer Sealed Air pointed to the US and European markets as drivers for its sales growth as its Protective Packaging division posted a sales increase of 12 percent on a constant dollar basis to $321 million, and a 14 percent rise in volumes.

 

3M achieved a more conformist sales growth pattern in its Consumer and Office division as the Asia Pacific and Latin America regions saw double-digit sales growth, while the division posted organic growth of 5.2 percent. 3M said that its office supplies business was up in the double-digits, but this includes acquisitions, most notably the A-One labels business in Japan.

 

Germany’s Henkel said that its Adhesive Technologies division was the biggest growing business unit in the quarter with an organic sales increase of 13.6 percent. However, there is no visibility as to the performance of its stationery products, which include the Pritt brand.

 

Other companies which saw growth were on or around the market average.

 

ACCO, which is the only pure office supplies vendor in the companies featured here, posted a respectable two percent increase in its overall top line, with a 3 percent increase in North America and essentially flat sales in Europe.

 

Lack of growth at ACCO’s Computer Products Group (CPG) in Europe has led to a structural change as CPG head Chris Franey also takes on the role of President International in an effort to gain more traction for the Kensington brand in the European office supplies channel, especially outside the UK. After several years of major changes at ACCO, it is questionable whether yet another period of reorganisation in Europe is what is really needed at this time.

 

Like ACCO, Newell Rubbermaid has also announced changes to its European operations with its "European Transformation Plan" that will centralise decision-making functions in Switzerland. How much this will disrupt Newell’s European operations remains to be seen, as all the changes are not planned to be completed until 2010 and also include an SAP implementation. However, coming after the leadership and organisational changes announced at the beginning of this year, it does seem a bit late. It will mean a three-year period of change for Newell in what should be a period of economic recovery. In its quarterly webcast, Newell admitted that it was doing "what other companies have done ahead of us" and, with hindsight, the transformational plan would probably have been better coming 18 months ago at the onset of the recession.

 

In terms of its results, Newell said that underlying sales at its Office Products division were up 3.1 percent in the second quarter. The diversification into other product areas seems to be paying off with the biggest growth in the quarter coming from the Mimio brand of interactive teaching tools.

 

Newell’s rival in the writing instruments sector, France-based BIC, saw a slowdown in the second quarter after posting double-digit growth rates in Q1. Second quarter sales edged up 2 percent.

 

BIC was one of several companies to note that its reseller customers have delayed some of their back-to-school purchases this year until the third quarter, so we shall be looking to see if there is an upside in Q3 results.

 

This delay of BTS purchases by major retail customers was also stated by MWV as a reason for year-on-year sales falling during the quarter by almost 3.5 percent. MWV said this fall was expected and it was still planning on a "solid" back-to-school season.

 

The other featured company to experience a sales decline in the second quarter is Avery.

 

Avery blamed weak end-market demand for a 5 percent drop in organic sales at its Office and Consumer Products (OCP) division to just under $209 million. The company is also coming under pressure from 3M which has moved into the labels segment with its Post-it brand and its Japanacquisition, and has picked up business at Office Depot. This will be of major concern to Avery, but it is fighting back with strong promotional and marketing campaigns, although this is negatively impacting margins. It has strong brand value, but so does 3M, and it looks like being an interesting battle between two evenly matched adversaries.

 

Looking ahead, for the full year, it is likely that we’ll see flat or modestly increasing year-on-year sales overall as meaningful recovery in the all important jobs markets continues to lag in most major economies, and the latest employment data from the US today is not encouraging.

 

This makes the back-to-school season doubly important for vendors (as it will be for resellers, too). Indications are that this year will be a stronger BTS than in 2009, but it is once again likely to be highly promotional, potentially hitting profits.

 

Encouragingly, vendors have reacted positively to the soft market conditions by launching new products and stepping up marketing efforts, especially with regards to online and social media. Newell, for example, has caused a buzz with its new Liquid Pencil (although its September launch will be too late for BTS) and 3M has been plugging the 30th anniversary of the Post-it brand, only last week unveiling a giant Post-it billboard in New York’s Grand Central station.