In a recent article I wrote about profiting from the agriculture process, and with the recent birth of my firstborn son it has become all too apparent to me that babies are a big business as well. Since these two markets are directly related, more people eating more food makes more demand, I thought I would use my son's birth as a reason to examine exactly how to profit from this life event and to also identify companies that have found a way to make a good profit from this market. The below companies derive only a portion of their income from the baby industry so we will examine the companies as a whole and then highlight the baby portion of their company.
Johnson & Johnson (NYSE:JNJ)
Probably every investor out there knows of JNJ. Walk down any hygiene aisle in America and you will see all sorts of products that bear the JNJ stamp. This is also true for most baby care sections of those same stores. First let us look at JNJ as a whole and then we will examine the baby product revenue numbers specifically. Johnson & Johnson's baby offerings include baby cleaning and skin care products.
Even though JNJ has increased revenue by 10% over the last four years it appears that JNJ has trouble maintaining its profit margin. This is probably due to the highly volatile prescription drug sector of JNJ. Prescription drug profits are hard to forecast from year to year when considering expiring patents and pending drug patent approvals. Let us look more specifically at baby care revenue numbers from JNJ's consumer products segment. Worldwide sales for JNJ saw a 3.6% decline from 2.34 billion dollars in revenue in 2011 to 2.254 billion dollars in 2012. Based on these numbers, JNJ's baby care segment contributes only 3.3% of JNJ's total revenue towards the company's overall total. While JNJ appears to be a solid company this may not be the best company to look at if you are solely focused on the baby care segment.
Proctor & Gamble (NYSE:PG)
PG is another company just like JNJ that has its brand stamped on a vast array of products. PG unlike JNJ is much more consumer product centric. While JNJ's consumer segment is only a small portion of the overall company PG is almost entirely a consumer product producer. Let us take a look at PG as a whole and then we will discuss its baby care segment. Brands like Pampers and Puffs, because kids are always sick, as well as their vast array of cleaning products affords PG great exposure to the baby care segment.
PG has increased revenue by almost 10% over the last four-year time period. PG has seen its profit margins squeezed due to higher input prices but has recently started to raise prices in response to those higher costs. The price raises do not appear to be harming total net sales so we should see profit margins expand over the coming quarters. PG's baby and family care segment contributes roughly 19.3% toward its overall revenue total. You must also consider that increased use of PG's cleaning items results from the baby care segment. This makes PG a much stronger play in the baby care sector than a JNJ-like company.
Kimberly Clark (NYSE:KMB)
KMB just like PG is another large-cap American corporation that produces consumable products for consumers. KMB not only offers products for personal hygiene and household consumables, but it also has a very large consumer tissue segment. Brands like Kleenex and Huggies has KMB well positioned to profit from the child care sector.
It is difficult to analyze KMB's baby care segment since it does not break out that specific sector's number in its earnings statements. So we are left to speculate as to how much that specific segment contributes to the company's bottom line. KMB's baby care sector is represented by two specific company segments within KMB, personal care and customer tissue. The personal care and consumer tissue segments represent almost 75% of KMB's total revenue generation. These two segments have also seen quite an uptick in profitability over the last year with personal care rising 8.8% and consumer tissue rising 14.5%. While it's hard to analyze KMB's specific profitability from the baby sector alone one thing is certain - KMB knows how to continue to profit regardless of what sector it focuses on.
Abbott Laboratories (NYSE:ABT)
ABT is more focused on the infant nutrition segment of baby care sporting brands such as Similac and Pediasure. ABT just recently spun off its pharmaceutical business segment into a company called AbbVie. This spin-off created two distinct companies and resulted in a dividend decrease for ABT although the table below does not show this reduction since the reduction occurred in 2013. The spin-off dividend payments are now $1.60 annualized for ABBV and $0.56 annualized for ABT for an annualized total of $2.16 if you owned ABT during the spin-off. The aggregate total of both companies shows that had the separation not occurred that 2013 would have seen a dividend payment increase.
Prior to the ABBV spin-off ABT's pediatric nutritional segment accounted for about 9% of total company revenues. After the spin-off we expect the pediatric nutritional segment's percentage of revenue to increase slightly. We will see how much after it reports first-quarter earnings in 2013. We have a few questions about how the ABBV spin-off with affect ABT as a whole. Time will reveal whether the company division will be a profitable one that will allow you to profit from the infant nutrition segment.
As you can see there are many ways to profit from the baby care segment of the consumer market. Please comment in the section below and let me know how you are profiting from this market segment. Your input is always highly valued.
Disclosure: I am long JNJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.