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China slowdown hits consumer brands as P&G, J&J see weak results
[NEW YORK] Consumer product giants Procter & Gamble Co and Johnson & Johnson reported slowing sales for some brands in China last quarter, as weakness in the world's second-largest economy starts to hurt multinationals that have spent years building up their businesses there.
P&G Chief Financial Officer Jon Moeller said Tuesday on a conference call that certain brand categories in China are growing 5 per cent to 8 per cent annually, "somewhat slower than they were two and three years ago." Likewise, J&J said international sales from businesses such as its baby care and skin lines were hurt by the Chinese slump.
"We did see a slowdown in China, primarily in the consumer business," said Dominic Caruso, J&J's chief financial officer. He said the company's medical-devices and pharma businesses still had high single-digit growth, and that the company was still optimistic about business in the country.
China's emerging middle class has been a source of optimism for multinational companies for years as people move to cities from rural areas, find higher-paying jobs, and increasingly spend their discretionary income on brand-name products like the ones sold to J&J and P&G. Yet, that story has been changing lately. China's economic growth slowed in the December quarter, marking the weakest period since the 2009 global recession, with industrial production, retail sales and fixed-asset investment all facing headwinds.
Still, companies like New Brunswick, New Jersey-based J&J don't expect that even a significant slowdown in China would hurt their businesses substantially. Caruso estimated that the country contributes less than 5 per cent of total revenue, and he views it as a longer-term opportunity.
"Any short-term changes in the economy are unlikely to have any significant impact on our results," he said Tuesday on a conference call with investors.
J&J has been operating in China for more than 30 years. It doesn't break out results for the country, though two years ago it said its business in China brought in US$2.8 billion in annual sales.
P&G's Moeller said on the conference call that the Cincinnati-based company is seeing its strongest growth in China in premium categories such as the SK-II skin cream line. Baby care and feminine products have been weak, however.
Moeller said he's been spending a lot of time in China, travelling there just before Christmas and again last week. He's trying to figure out how the consumer products giant can capitalize on the lifting of China's one-child policy. He said he doesn't expect the recent hiccups to continue. "The current guidance does expect an improvement in China in the back half, and that should be very doable just based on the math alone," he said on the call. "We really think that there is significant continued opportunity there, both top and bottom line."