NEW YORK, Dec. 4, 2008 (GLOBE NEWSWIRE) -- Reaction to the global economic slowdown continues to be reflected in reduced optimism about the 12-month outlook for the U.S. economy among senior executives of consumer products companies, according to the third quarter edition of the PricewaterhouseCoopers LLP Consumer Products Barometer. In the third quarter of 2008, only 9 percent of respondents are optimistic about the U.S. economy versus 17 percent in the second quarter; and Q3 2008 results represent a 20 point drop from the 29 percent that were optimistic in the third quarter of 2007. Uncertainty about the world economy also increased for respondents selling abroad, with only 6 percent expressing optimism, down from 17 percent during the second quarter.
"The consumer products industry, like many others, is being significantly affected by the current liquidity and credit crisis," said John Maxwell, leader of the U.S. retail and consumer industry practice at PricewaterhouseCoopers. "Our clients are facing headwinds the likes of which have not been experienced since the depression, and the lack of optimism we're seeing in this quarter's report reflects the many unknowns and uncertainties confronting business today."
International Sales Soften
Consumer products companies selling abroad expect the contribution from international sales to total revenue to decrease, projecting it at 21 percent over the next 12 months. The projected contribution from international sales for the next 12 months represents a 5 point drop from the prior quarter but is still slightly ahead of the 19 percent reported a year ago. In the third quarter, 44 percent of consumer products companies increased sales abroad, down 17 points from the prior quarter, and 16 percent reported a decline, up 10 points from the second quarter.
Concern about Demand Rises as Top Barrier to Growth
Consumer products companies are now most concerned about lack of demand, with 65 percent citing it as their major barrier to growth over the next 12 months, up from 54 percent in the second quarter of 2008 and markedly higher than 37 percent from the third quarter of 2007. Concerns about oil/energy prices led as the major barrier to growth for the past year but fell into second place during the third quarter with 61 percent concerned, dropping 32 points from its prior quarter high of 93 percent, mirroring the drop in oil prices. Consumer products executives also cited decreasing profitability (41 percent) and capital constraints (24 percent) as major barriers to growth during the next 12 months.
Revenue Projections Reset
Senior executives of consumer products companies reset their 12-month revenue growth projections from 3.2 percent in the second quarter to 2.7 percent in the third quarter, a 16 percent decline. This represents a significant decline from the 6.8 percent reported in the third quarter of 2007.
Rising Costs and Prices
Overall, fewer respondents are reporting costs and price increases in the third quarter. Costs increased for 67 percent of consumer products companies and decreased for 17 percent -- a net of 50 percent reporting higher costs, which is much lower than the 82 percent from the prior quarter (which was a survey high). A net 48 percent of companies increased prices this quarter (59 percent raising prices and 11 percent lowering prices), dropping 15 points from the survey high of 63 percent recorded in the second quarter. Looking ahead, 41 percent view decreasing margins as a barrier to growth in the year ahead, compared to 36 percent one year ago.
"Consumer products companies are developing innovative ways to avoid passing along higher costs," noted Lisa Feigen Dugal, North American retail and consumer industry advisory leader for PricewaterhouseCoopers. "Many are collaborating closely with retailers to manage inventory, co-brand products, and better target promotions in order to control costs and prevent price increases."
Fewer Companies Planning Major New Investments of Capital
Fewer consumer products businesses are planning major new investments of capital during the next 12 months, with only 26 percent reporting as such in the third quarter. This represents a drop of 11 points from the prior quarter and one year ago. Plans for major new investments have been fairly strong over the past year, peaking at 45 percent in the first quarter of 2008 and then sharply declining over the past two quarters. The mean investment dropped sharply in the third quarter to 5.6 percent of total sales, down from 9.7 percent in the second quarter, and lower than the all-industry consensus of 7.8 percent of total sales in the third quarter.
Plans for Strategic Alliances on the Rise
Nearly one-third of consumer products companies plan to forge new strategic alliances in the upcoming 12 months (30 percent), up 8 points from the second quarter of 2008. Fewer companies are planning to expand into new markets abroad, with 24 percent planning to undertake this initiative within the next 12 months, down 13 points from the second quarter. Plans for M&A activity declined slightly to 30 percent from 32 percent in the prior quarter, with the majority of those companies planning to purchase another business and only a small number planning to sell all or part of their business.
Special Issues Affecting Consumer Products Companies
Each quarter, the Consumer Products Barometer spotlights issues that are currently affecting U.S. consumer products companies. Three special topics were addressed in the third quarter survey.
Utilizing Scan Data: Just over one-third (37 percent) of senior executives report recently working with retailers to better utilize scan data and another 6 percent plan to do so over the next 12 months. Executives cited improving marketing effectiveness and better understanding pricing and promotional effects as their primary objectives for improving the use of scan data. Of the 37 percent seeking improvements, 65 percent said improving effectiveness of trade and marketing spending is their top objective; and better understanding the effects of promotions on consumer demand is their second most important objective (60 percent). Half of the respondents also want to better understand the effects of pricing on consumer demand (55 percent) and to be able to change the promotion/pricing mix to more effectively meet consumer needs (50 percent).
Collaborating to Avoid Passing Along Higher Prices: More than half (52 percent) of large consumer products companies are developing innovative ways to avoid passing along higher prices to retailers, and ultimately, to consumers. Virtually all executives surveyed have been engaged in a variety of collaborative activities with retailers over the past 12 months. Three-fourths are working with retailers to better target promotions, while 69 percent are targeting product selection and distribution to meet local consumers' needs. Over half have established an inventory management program with retailers (59 percent), worked with retailers to implement new efficiencies in packaging and design (59 percent) and developed a customized new product introduction for one or more retailers (56 percent).
Managing Indirect Tax Issues: Nearly six in 10 (59 percent) senior executives of large, consumer products businesses report that they manage indirect tax issues (such as customs duties, VAT, etc.) themselves, either in the local country jurisdiction or through their own centralized function. One-third (32 percent) have a centralized indirect tax function, but relatively few of these (24 percent) have their own tax specialists dedicated only to indirect tax matters. The majority (53 percent) include indirect tax issues when considering overseas business initiatives. A notable minority (41 percent) rely on third party providers -- such as customs brokers or freight forwarders -- to manage transaction processing and compliance with customs duties obligations.
Currently, 37 percent of consumer products companies source raw, packaged, or finished goods to lower-cost countries.
About the Consumer Products Barometer
Issued by PricewaterhouseCoopers' retail and consumer industry sector, the "Consumer Products Barometer" is a quarterly survey of top executives in 54 large, consumer products businesses (surveys conducted between August 13, 2008 and November 11, 2008) compared with the 132 large, multinational company consensus.
Profile of Consumer Product Barometer Demographics:
* Average # Employees...............6,343
* Average Revenues..................$3.83 B
* Average Enterprise Revenues.......$11.65 B
* Market Capitalization.............$9.76 B
For more information about Barometer surveys, including recent economic trend data and topical issues, please visit our web site: www.barometersurveys.com
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