The CEO, who in August branded the singer too sexy to be the face of Nivea, has presided over a 41 per cent jump in a share price that had barely trodden water in the four years prior to his arrival from Swiss food company Hero AG. Under Heidenreich’s leadership, the Hamburg-based company has twice raised its forecast for sales, which had stagnated since 2008.
Dropping Rihanna, whom Nivea had used in advertising since 2011, formed part of Heidenreich’s plan to return the brand to its roots. Creating a new logo and packaging inspired by Nivea’s traditional box was another. Still, the executive will need to go some next year to justify a forward price-to-earnings multiple that’s the third-highest in Germany’s DAX Index.
“Investors were pleased to see this year that the focus on the core Nivea brand is paying off,” said Daniel Lucht, an analyst at ResearchFarm, a London-based retail and consumer- goods forecaster. “Next year will be a lot tougher.”
Among those watching closely are the billionaire Herz family of Germany, who control about 51 per cent of the company, and Cincinnati-based Procter & Gamble Co, whose CEO, Robert McDonald, said in September 2010 that Nivea was a “terrific global brand,” sparking speculation about a possible takeover.
“If they’re happy with the improved momentum that Heidenreich has brought, then that’s great and if they’re not happy then it’s well-known that there are interested outside parties,” said Chas Manso de Zuniga, a London-based analyst at Societe Generale SA. “Many people are considering that to be a win-win.”
Not everybody is so sanguine.
“He probably has three or four years to pull this off,” said Sebastian Frericks, an analyst at Bankhaus Metzler in Frankfurt who has had a sell recommendation on the shares since 2009. “He won’t necessarily be all judged by next year because things like innovation will probably take 12 to 18 months to implement, though Beiersdorf would probably be in trouble again if growth was to slow down again next year.”
Right now, that’s not something analysts are contemplating. The average estimate for 2013 revenue is euro 6.3 billion ($8.3 billion), according to data compiled by Bloomberg, an increase of 4.9 per cent from estimated sales for 2012. The last time Beiersdorf had growth exceeding that was in 2008.
This year’s gain in Beiersdorf shares has outpaced a 29 per cent advance in the 30-member DAX Index. The stock ended the year at euro 61.88, compared with euro 44.23 when the CEO joined and euro 53 at the end of 2007.
Play to win
Heidenreich, who joined in January and became CEO in April, said in his first conference call in May that Beiersdorf “will only play where it can win,” which he identified as skincare. The 50-year-old executive then crystallised the notion, saying Nivea skincare should stand for trust, reliability and family values. Dropping Rihanna was his way of making the point.
“It was a very public example of a decision that came straight from him,” Charles Skinner, a strategy director at FutureBrand in London, said in a phone interview. “With that act, Nivea, which had gone a bit off track with Rihanna, returned to its core values. He’s riding a wave of goodwill from investors right now. The challenge will be to keep it going.”
With Nivea estimated by analysts to represent about 60 per cent of Beiersdorf’s sales, promoting growth at the 102-year- old brand is a key part of the CEO’s plans.
To maintain the momentum, Heidenreich is instituting a program of product innovation, particularly in faster-growing emerging markets. A new research & development center opened in Wuhan, China, in May and a similar establishment is under construction in Mexico, which is due to start operating in 2014.
The CEO’s emerging-market ambitions can be seen from the team of executives he’s building around him. In May, Beiersdorf hired the former head of Nestle SA’s Russian business, Stefan De Loecker, as board member for Russia, Turkey, Middle East, Africa and India. Patrick Kaminski, who joined from Henkel AG, took charge of China, Thailand, Vietnam, Indonesia and Australia.
“He is investing more aggressively in personnel and poaching more people from big competitors,” Frericks said.
In addition to increasing sales, Heidenreich has vowed to “persistently” question costs to boost profitability. That includes reducing the company’s marketing budget in crisis-torn Europe and cutting its advertising investment in China, where Beiersdorf is aiming to break even by 2014.
Heidenreich’s skills in product management and brand marketing make him the right person to lead the maker of Eucerin skin cream and Elastoplast bandages, said Michel Keusch, a fund manager at Bellevue Asset Management in Kusnacht, Switzerland.
“You don’t have many candidates in this position with such a track record in the consumer-goods industry,” said Keusch, who as an analyst at Credit Suisse First Boston covered Hero when Heidenreich was CEO.
Heidenreich, a former windsurfing champion whose hobbies include running and mountain biking, began his career in 1987 at Procter & Gamble in Germany. Five years later, the father of four moved to Reckitt Benckiser Group Plc, before joining Hero in 1996. He took over as CEO of the Swiss company in 2002, masterminding an expansion that included the 2005 acquisition of the Beech-Nut baby food business in the US and the 2008 purchase of the Organix children’s nutrition brand in the UK.
“He really took Hero from a European company to a global company,” said James Amoroso, an independent consumer-goods consultant who covered Hero as an analyst. “He’s someone who is very hands-on and has tremendous energy.”
Acquisitions may form part of the CEO’s plans to stoke revenue growth at Beiersdorf, said Societe Generale’s Manso de Zuniga, who identified the US and China as countries where “there are clearly gaps” in the company’s product portfolio.
Beiersdorf had euro 1.65 billion of cash and equivalents on its balance sheet at the end of 2011, providing the company with firepower to consider possible transactions.
Right now, there’s plenty for Beiersdorf investors to be happy about. The shares trade at more than 29 times estimated earnings, according to data compiled by Bloomberg, compared with 22 times for French competitor L’Oreal SA and about 18 times for Unilever, the world’s second-biggest consumer-goods company.
“Valuations at the beginning of a successful restructuring story are always expensive,” said Andreas Riemann, an analyst at Commerzbank AG in Frankfurt “I wouldn’t be concerned too much because the earnings momentum at Beiersdorf is probably higher than what you see at Henkel or L’Oreal.”
The high valuation means most analysts, while supportive of Heidenreich, are reluctant to recommend the shares to clients.
Using a scale of 1 to 5, with 5 being the most positive, the consensus recommendation for Beiersdorf is 2.57, below L’Oreal’s 3.33, Unilever’s 3.59 and P&G’s 3.73, according to data compiled by Bloomberg.
“Heidenreich has done more than people expected at the beginning of this year, said Bankhaus Metzler’s Frericks. “I’m a bit cautious about the share price next year, though.”