PZ Cussons’ (PZC) latest profit warning seems to suggest Brexit-related economic uncertainty has put Brit’s off washing. According to management at the consumer goods giant, low demand for products such as Original Source shower gel and Imperial Leather soap – the result (they say) of consumer caution – is one of the reasons pre-tax profit in the year to May 2018 is now expected to come in between £80m and £85m, almost a fifth lower than last year.
The UK and Nigeria – where discretionary purchasing has also been subdued due to cost inflation – have caused PZ Cussons many difficulties recently. In 2017, the weakness of the Nigerian naira against the US dollar dented reported revenues, while competition in the UK’s washing and beauty division caused a 2 per cent drop in European underlying operating profits. The problems continued in the first half of the 2018 financial year when underlying operating profits fell by a tenth and – despite management’s previous assurances of a turn-around – the pressures don’t seem to have eased in the second half.
But as it can be assumed that weak fiscal metrics are not stopping either Brits or Nigerians from washing properly, it is perhaps fair to suggest that PZ Cussons could have done more to prevent the problems. Indeed, the group’s peers including Unilever (ULVR) and Colgate Palmolive (US: CL) have enjoyed decent growth in Europe (despite price deflation) thanks to new brand launches and product innovation.
But it's not all bad at PZ Cussons. Management said other markets remain robust and results in Australia, Indonesia and in the beauty division are ahead of the prior year. But weakness in demand in the UK and Nigeria is far from ideal considering Europe and Africa together contribute 71 per cent of group revenues and 77 per cent of underlying operating profits. Moreover, the increased use of cheaper versions of household products is a worrying trend in the consumer goods sector and perhaps suggests that brand power is not as strong as investors once thought.
