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Stiff competition in North America hinders growth

  • 17 Nov 16

Bic released Q3 FY16 results below our estimates as well as market consensus. The revenue at CER came in at +3.8% (vs AV’s estimate: +4.9%), on the back of a sluggish performance in the consumers business (+3.2% vs AV’s estimate: +5.5%; accounts for c.85% of Q3 16 revenue). Within the segment, the biggest disappointment was the shavers business (+1.4% vs AV’s estimate: +8.5%; accounts for c.20% of Q3 16 revenue), pinned down by a 4.6% decline in the US wet shave industry (5.8% decline in the one-piece segment; ytd September 2016). Revenue growth in the stationary business also slowed to +2.4% (vs AV’s estimate: +4.0%; accounts for c.33% of Q3 16 revenue) as intense competition depressed growth in the North American region (low single-digit during the quarter). However, the lighters business showed consistent performance (+6.5% vs AV’s estimate: +6.0%; accounts for c.30% of Q3 16 revenue), driven by robust growth in Western Europe (largely due to increased brand support in Germany and Austria) and Eastern Europe (gains from a better distribution network). Revenue gained momentum in the Bic Graphic segment (+7.2% vs AV’s estimate: +1.0%; accounts for 15% of Q3 16 revenue), helped by favourable timing in the calendar business (benefiting from early shipments compared to last year). Geographically, sales grew 9.2% in the developing markets (vs Q3 15: +9.0%; accounts for c.28% of Q3 16 revenue), followed by Europe (+2.6% vs Q3 15: +3.5%; accounts for c.24% of Q3 16 revenue) and North America (+1.3% vs Q3 15: +2.9%; accounts for c.48% of Q3 16 revenue). Total revenue increased by 2.1% (vs AV’s estimate: +3.9%) on the back of FX headwinds (-1.7% vs AV’s estimate: -1.0%; depreciation of LatAm currencies against the euro). The operating margin came in at 18.6% (vs AV’s estimate: 18.9%), mainly due to the higher than expected investment in brand support/R&D in the stationery business (3.9% vs AV’s estimate: 8.7%). Moreover, the unfavourable fair value adjustments of US dollar-denominated financial assets lowered the net finance income (€1.2m vs AV’s estimate: €2.9m), further depressing the EPS by 3.1% (vs AV’s estimate: +2.5%). Management has maintained its FY16 guidance at mid single-digit revenue growth at CER and a 100-150bp decline in the operating profit.

Disappointing results but business model remains strong

  • 30 Sep 16

Bic posted disappointing H1 FY16 results vs our estimates and slightly below market consensus. In Q2 16, net revenue increased by 4.2% at CER (vs Q2 15: +5.2%), largely due to a slowdown in the consumer business (+4.7% vs Q2 15: +5.6%; accounts for c.89% of group revenue). Within the segment, the growth in the lighters business decelerated to +5.4% (vs Q2 15: +9.3%; accounts for c.29% of group revenue), on the back of the high prior year comparable in North America (Q2 15 benefited as customers bought ahead of price adjustments). While the shavers business showcased consistent performance (+9.0% vs Q2 15: +9.5%; accounts for c.20% of group revenue) driven by the success of its value-added products in Europe and North America, the positive momentum continued in the Stationery division (+4.0% vs Q2 15: +2.5%; accounts for 37% of Q2 16 sales) led by a strong back-to-school season across geographies. Growth once again slumped in the Bic Graphic segment (+0.3% vs Q2 15: +1.8%; accounts for c.11% of Q2 16 sales). Geographically, sales grew 8.7% in Europe (vs Q1 15: +5.0%; accounts for c.28% of group revenue) followed by developing markets (+3.3% vs Q2 15: +8.0%; accounts for c.25% of group revenue) and North America (+2.3% vs Q2 15: +4.9%; accounts for c.47% of group revenue). The total reported revenue slumped by -1.1% (vs Q2 15: +16.6%; our estimate: +7.3%) due to strong currency headwinds (-5.3% vs Q2 15: +11.4%; particularly due to the depreciation of Latin American currencies against the euro). In H1 16, the reported revenue was flat (-0.1% vs H1 15: +17.1%; our estimate: +4.6%) while the underlying operating margin (excluding the impact of the special employee bonus) weakened to 19.4% (vs H1 15: 21.1%), largely attributable to the planned investment in brand support and R&D in the shavers (margin down to 13.4% vs H1 15: 20.2%) and stationery businesses (margin down to 14.1% vs H1 15: 15.7%). Furthermore, the unfavourable fair value adjustments of US dollar denominated financial assets in H1 16 led to a net finance expense of -€3.4m (vs H1 15: +€11.8m), lowering the EPS by 20.3% (vs H1 15: +29.4%; our estimate: -10.9%). Management has maintained its FY16 guidance of mid single-digit growth in sales (on a comparable basis) and a 100-150bp decline in underlying operating profit due to accelerated brand support and R&D investments.