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P&G (PG) Flounders as Unilever Targets Its Gillette Cash Cow with 'Dollar Shave Club' Takeover

July 20, 2016 12:20 PM EDT
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Price: $162.61 --0%

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    17 Buy, 19 Hold, 1 Sell

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Shares of Procter & Gamble (NYSE: PG), the owner of Gillette, are flat-lining Wednesday (-0.3%) despite a robust broader market as investors digest the implications of Unilever's $1 billion takeover of Dollar Shave Club (DSC).

According to the release, DSC is said to boost 3.2 million members with revenues of $152 million in 2015, which is expected to increase to $200 million this year. DSC is said to have approximate 5% share of the U.S. shaving market and a 1% share of the global shaving market.

Stifel analyst Mark Astrachan called the news a "modest negative" to Procter & Gamble, the global market leader in shaving, and Edgewell Personal Care (NYSE: EPC), the second-largest global shaving company.

Astrachan explains that P&G has lost considerable market share in shaving in the U.S. from 2010-2015, approximately 1300bps to 59%, mainly to DSC and to private label, and modest global market share, approximately 300bps to 64%, over the same time period.

Overall P&G derives approximately 10% of sales and 15% of pre-tax income from grooming (including female shave products), the analyst notes.

"We believe increased category awareness through Unilever’'s efforts with DSC, particularly in developing markets, could help improve global category growth," he said. "In constant dollars, the men’s shaving market has grown at an approximate 4% rate from 2010-2015, largely driven by developing markets including Brazil and India. This compares to 2% growth for P&G’s grooming business over the same period."



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