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ACV AT A GLANCE

P/E ► 24.4 AVG EV/EBITDA ► 15.6 AVG ROA ► 7.9% AVG ROE ► 10.3% AVG Debt to Equity ► 0.302 LOW Current Ratio ► 3.14 AVG Interest Coverage Ratio ► 283 HIGH

 

 

 

 

 

 

Alberto-Culver (NYSE: ACV) owns cosmetics brands such as Nexxus, TRESemme, Alberto VO5, and St. I'ves. Nexxus and TRESemme are responsible for the majority of the company's revenue.^[1]

TRESemme and Nexxus were acquired by ACV, and are now the company's best-performing brands. ^[2] Though Alberto-Culver Company is significantly smaller in size and revenues than its competitors Procter & Gamble Company (PG), and L'oreal (LRLCY), it has recorded greater growth than the rest of the industry. ^[3]

The company spent $284.7 million on advertising and marketing in 2007.^[4] Even with heavy spending on marketing for current products that were developed in-house, the company has achieved much of its growth through its acquisitions; TRESemme and Nexxus both saw sales growth in 2007, but Alberto-Culver's in-house developed hair care line, Alberto VO5, saw sales decrease. Nexxus and St. Ive’s spent with 1% and 0.84% of net sales on advertising and marketing, while TRESemme and Alberto VO5 spent 4.5% and 0.66%, respectively. ^[5]

The company's top 5 customers (the largest of which was Wal-Mart) represented 30% of sales. ^[6]

Company Overview

Alberto Culver Company consists of two wholly owned subsidiaries that make and sell branded beauty and household products, with 90% of their net sales coming from their beauty products. ^[7]

• Consumer Packaged Goods (Revenues 85%, Operating Income 92%) offers well-known brands VO5, TRESemme, Nexxus, and St. Ive's and operates in the United States and over 100 other countries.^[8]
• Cederroth International (Revenues 15%, Operating Income 8%) offers branded food and household products throughout Scandinavia and Europe.^[9] This subsidiary is being sold to a Scandinavian private equity company CapMan.^[10]

The company's four largest and fastest-growing brands are VO5, TRESemme, Nexxus, and St. Ive's, which represent 50% of the company's sales.^[11] The Alberto Culver Company has acquired companies like Sally Beauty Supply Stores, Nexxus and TRESemme and eventually sold off Sally Beauty Supply stores and is now focusing on specific high-end beauty and hair care brands. ^[12] Sally Beauty Supply Chain Stores was sold off in 2006, but have remained a top retailer of Alberto-Culver products.^[13] The company is largely family-run with daughter of founders Leonard and Bernice Lavin holding the chairman position and James Marino assuming the CEO role.^[14] The company has seen steady growth at five-year compound annual sales growth of 8% and saw a 19% compound annual growth of 19% from 2001 to 2005 due to their increased sales from their premium hair care brand Nexxus.^[15]

Financial Performance

The company wholly owns^{[citation needed]} Consumer Packaged Goods, which manufactures and distributes household and beauty care products in the United States and over 100 other countries, and Cederroth International, which does the same throughout Scandinavia, Alberto-Culver Company recorded net sales of $1.54 billion in 2007 and $1.4 billion in 2006.^[16] Consumer Packaged Goods posted a 8.6% increase in sales driven by increased sales in TRESemme hair products at 7.2% and Nexxus hair care products at 1.4%. Cederroth International saw a 6% increase in sales driven by their Soraya skincare products in Poland with a 3.1% increase in sales.

Key Trends and Forces

Consumer Spending Patterns and Preferences for Beauty Products Change Quickly

In order to create brand value and awareness, Alberto-Culver spent $284.7 million on Advertising and marketing in 2007.^[22] Furthermore, ACV has less money to spend on product development than competitors; the company spent $15.8 million on Research and Development while L'oreal (LRLCY) spent $666 million and Revlon (REV) spent $24.4 million.^[23] This makes marketing even more important to the company. There are considerable costs in researching what consumers prefer for their beauty and hair care products, but those preferences may change quickly, and if ACV gets behind, sales would drop dramatically.

Limited Number of Customers Represent Large Portion of Net Sales

A significant portion of the company's net sales comes from a small. concentrated number of large customers with Alberto-Culver's top 5 customers representing 30%, 29%. and 28% of its net sales in the years 2007, 2006, and 2005^[24] Its largest customer is Wal-Mart Stores (WMT) and the product decisions of the mass merchandiser directly affect Alberto-Culver and its sales. Particularly because long-term contracts are not used and sales are made on a store-to-store basis, the relationships and shelving decisions of Wal-Mart and other mass retailers that represent a significant portion of Alberto-Culver's sales has a powerful impact on the success and future growth of the company,^[25]

Growth has been Primarily Driven by Acquisitions but may be Risky for Long Term

Alberto-Culver has made acquisitions of small companies with a high capacity for growth such as Nexxus and TRESemme and re-released them with improved marketing and brand image. Alberto-Culver's acquisitions, particularly TRESemme and Nexxus have boosted the company's sales in 2007 by 8.6% due mainly to increased sales of TRESemme shampoos, conditioners, and hair styling products by 7.2%. Nexxus has also helped fuel increased sales figures with a 1.4% increase in Nexxus sales. Alberto-Culver's original products of Alberto VO5 had a decrease in sales which offset some of the increases made by their acquisitions.^[26] With acquisitions of companies being an integral part of Alberto-Culver's growth, the company runs risks of failing to continue to successfully choose and acquire companies with high growth, or the inability to effectively assimilate those companies.^[27]

Resilient Brands Amidst Looming Recession

The unsteady economy has dramatically decreased Consumer confidence, with Consumer Price Index (CPI) hitting its lowest since 1992. ^[28] Still, Alberto-Culver has managed its restructuring and growth to maintain a strong balance sheet and record-high earnings in their third quarter, even after spending over $220 million in cash to repurchase shares and retire debt.^[29] In order to ensure continued growth, the company is consolidating its North-American supply chain and has closed their Puerto Rico manufacturing plant. The company is continuing growth of TRESemme by expanding internationally with a launch of TRESemme in Spain, which has had promising initial sales. Growth of the St. Ive's brand in latin America has also driven international sales.^[30] Nexxus and Alberto VO5 had constant, if not dramatic sales in the single digits. All brands contributed to Alberto-Culver's strong numbers in the third quarter.

Competition

• Procter & Gamble Company (PG) is the world's leader in production of household and personal products with 23 brands that led to over $76 billion in revenue for the company in 2007. The company saw 27% of revenue from their growth in emerging markets which contributed to their international stronghold on top of their large hold of the Chinese and Russian markets. They have continued to grow and maintain their leadership position through aggressive R&D spending that overshadows all of their smaller competitors, recording R&D spending of $2.1 billion in 2006.^[36]
• Unilever (UL) sells household and food products such as tea through their prominent brand [Lipton], with household products accounting for 54% of revenues. Their skincare and hair care brands such as Suave, Dove, Thermasilk, and Sunsilk comprise 46% of revenues. This European-based company made 62% of its sales in the Americas, Africa, and Asia and recorded 44% of sales from Emerging Markets. They have been struggling with increasing Commodities Prices as well as stiff competition from competitor Procter & Gamble Company (PG), which continues to record increasing sales despite high production costs.^[37]
• L'oreal (LRLCY) holds the top position as the largest beauty and health care products producer in the world, with 15.3% market share in 2007. The largest driver of their sales is hair and skin care products representing 25% of their sales, and acquired The Body Shop, Beauty Alliance, and YSL Beaute in 2006, 2007, and 2008, respectively. L'Oreal's cosmetic branch, consisting of hair care, make up, colorants, skin care, and perfume products made up 93% of their revenues.^[38] Effectively expanding into emerging markets, targeting aging populations that demand more cosmetics products and exploring the male cosmetics market, L'Oreal has maintained their industry market share leadership through continuous R&D and specialization.^[39]
• JOHNSON & JOHNSON (JNJ) is the second largest health care products manufacturer based in the United States and has annual sales of $61.1 billion. JNJ owns successful brands such as Tylenol, Band-Aid, and Neutrogena and acquired Pfizer's Consumer Healthcare Division in 2006, making Johnson & Johnson a dominant player in the consumer healthcare products industry. Although Johnson & Johnson has a significant stake in the healthcare sector of consumer products, 18% of their products are categorized as over-the-counter consumer health products, including baby oil, shampoos, and conditioners.^[40]

References

1. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Description of Business", p. 2
2. ↑ Reuters, “Citi Analyst Ups Alberto-Culver rating; shares rise” Jan. 17, 2008
3. ↑ | Reuters Thomson ACV Company Profile Jul. 2008
4. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Advertising and Marketing", p. 39
5. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Results of Operations", p. 22
6. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Risk Factors", p. 6
7. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Description of Business", p. 2
8. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Description of Business", p. 2
9. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Description of Business", p. 2
10. ↑ | Alberto-Culver Co. F3Q08 (Qtr End 6/30/08) Earnings Call Transcript
11. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Description of Business", p. 2
12. ↑ | Reuters Thomson ACV Company Profile Jul. 2008
13. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Description of Business", p. 2
14. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Risk Factors", p. 8
15. ↑ | ACV Alberto-Culver Company 2007 Annual Report
16. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Description of Business", p. 2
17. ↑ | Alberto-Culver Company 2007 Annual Report, "Selected Financial Data", p. 16
18. ↑ | Alberto-Culver Company 2007 Annual Report, "Selected Financial Data", p. 16
19. ↑ | Alberto-Culver Company 2007 Annual Report, "Selected Financial Data", p. 16
20. ↑ | Alberto-Culver Company 2007 Annual Report, "Selected Financial Data", p. 16
21. ↑ | Alberto-Culver Company 2007 Annual Report, "Selected Financial Data", p. 16
22. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Advertising and Marketing", p. 39
23. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Research and Development", p. 39
24. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Risk Factors", p. 6
25. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Risk Factors", p. 6
26. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Results of Operations", p. 22
27. ↑ | ACV Alberto-Culver Company 2007 Annual Report, "Risk Factors", p. 7
28. ↑ | Bureau of Economic Analysis: National Economic Accounts, "Personal Income and Outlays"
29. ↑ | Alberto-Culver Co. F3Q08 (Qtr. End 6/30/08) Earnings Call Transcript
30. ↑ | Alberto-Culver Co. F3Q08 (Qtr. End 6/30/08) Earnings Call Transcript
31. ↑ | Reuters, "Proctor & Gamble Financial Highlights"
32. ↑ | Reuters Alberto-Culver "Overview"
33. ↑ | Wall Street Journal, "Unilever Key Facts"
34. ↑ | L'Oreal Annual Report 2007 Parent Company Financial Statements "Compared Profit and Loss Accounts"
35. ↑ | Wall Street Journal
36. ↑ | Proctor & Gamble 2007 Annual Report
37. ↑ | Unilver 2007 Annual Report
38. ↑ | L'Oreal 2007 Annual Report, "Consolidated Financial Results", pg. 20-21
39. ↑ | L'Oreal 2007 Annual Report, "Research and Development", pg. 55
40. ↑ | JOHNSON & JOHNSON Q2 2008 Earnings Call Transcript