Bangkok Post

Why Consumer Goods Companies Should Start Shopping Around

Many consumer products companies now sit on record levels of cash, and investing in M&A is an attractive option.

By Matthew Meacham, Jean-Charles van den Branden, David Harding and Pankaj Saluja

First published on Μαΐου 11, 2015
min read


This article originally appeared in The Bangkok Post. Traditionally, investors looking for consistent returns could reliably turn to consumer products companies to put their money to work. These companies had a formula for creating profitable growth: delight consumers with innovations, expand into exciting new international markets and add to their stables by buying up-and-coming new brands. But something changed. Most consumer products companies recently have adopted the fashionable trend of stepping up share repurchases and dividends. According to a Bloomberg analysis in the autumn of 2014, S&P 500 companies were on track to spend 95% of their collective profits in 2014 on dividends and share buybacks, with consumer goods companies fully active. The trouble is, this activity may help short-term earnings per share, but in the long term it does nothing to deliverabove-average total shareholder returns(TSR), defined as stock price changes assuming reinvestment of cash dividends. Bain & Company analysis shows that growing operating earnings is the only way to spur long-term TSR. And the one thing that spurs operating earnings growth: systematic reinvestment into the business. *Read the full article at The Bangkok Post.*

This article originally appeared in The Bangkok Post.

Traditionally, investors looking for consistent returns could reliably turn to consumer products companies to put their money to work. These companies had a formula for creating profitable growth: delight consumers with innovations, expand into exciting new international markets and add to their stables by buying up-and-coming new brands.

But something changed. Most consumer products companies recently have adopted the fashionable trend of stepping up share repurchases and dividends. According to a Bloomberg analysis in the autumn of 2014, S&P 500 companies were on track to spend 95% of their collective profits in 2014 on dividends and share buybacks, with consumer goods companies fully active.

The trouble is, this activity may help short-term earnings per share, but in the long term it does nothing to deliverabove-average total shareholder returns(TSR), defined as stock price changes assuming reinvestment of cash dividends. Bain & Company analysis shows that growing operating earnings is the only way to spur long-term TSR. And the one thing that spurs operating earnings growth: systematic reinvestment into the business.

Read the full article at The Bangkok Post.