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Introduction to the Company
Alberto-Culver Company and its consolidated subsidiaries have three principal business segments. The Companys consumer products business is comprised of Alberto-Culver North America and Alberto-Culver International, and includes developing, manufacturing, distributing and marketing branded consumer products worldwide. The classes of products in the Alberto-Culver North America and the Alberto-Culver International business segments include health and beauty care products, as well as food and household products. The Companys retail health and beauty care products and food and household products are sold primarily through the Companys sales force employees and independent brokers calling upon wholesale drug establishments and retail outlets such as supermarkets, drug stores, mass merchandisers and variety stores. Health and beauty care products accounted for approximately %, 41% and 44% of the companys consolidated net sales for the years ended September 0, 1, 18 and 17, respectively. Alberto-Culver North America includes the Companys consumer products operations in the United States and Canada, and Alberto-Culver International sells consumer products in more than 10 other countries. The third segment, Specialty Distribution - Sally, consists of Sally Beauty Company (Sally Beauty), a distributor of professional beauty supplies through its Sally Beauty Supply stores and its full-Service Operations.
Financial Ratios Analysis
Overall, the P/E ratios are low telling how this is not a hot sector in the opinion of the financial investors. In the first three years of the analysis the P/E ratio of the company shows a consistent growth that tells how investors where willing to pay more for the company's stocks, anticipating rapid earnings growth and trust in the future of the firm. In fact, the market condition leads the company to a 1 stock split in the year 17. The next two P/E ratios are lower and in declining trend with respect to the first three but given the stock split, the ratio confirms a growth of the earnings of the company. Despite the good results displayed by the P/E, the investors in the last two years seem no more as enthusiastic as in the beginning of the period. This leads to think the financial market is checking on the company, waiting for some kind of changes before investing, or that the personal & household products industry is not in the aim of the Wall Street speculation, given the recent focus on hi-tech and biotech stocks.
The Return On Assets ratio of the company shows a stable trend from 14 to 16. The trend for the company goes along with the trend of the industry as a whole. But in 17 there is an evident leap towards a higher return on assets with respect either with the company or the industry trend. The leap in more evident with comparison to the industry, being the company's ratio twice as high as the industry's. But even more interesting is that the industry dynamic is the same as the company's but one year lagged. This suggests how the relative small size of the company enables it to make quick decisions and to respond quickly to opportunities whether they come from a consumer or a trade partner and to move quickly to implement new ideas whether they coma from inside or outside the company. Peculiar is also the fact that the net income increases equally proportionally to the assets' increases, showing how assets and growth- rather than, say, financial debt and growth - are strictly positively correlated to grow the company has to invest in new assets.
The Return On Equity ratio is satisfying considering the rule of thumb upon which a 10 percent ROE is considered desirable for providing enough return to the owners of the company and still have funds to invest. More importantly, the company's ROE shows an increasing trend that tops in 17 with a considerable increase in net income. With respect to the industry, the company seems to be able to satisfy the owner's and investment's needs better until 17-8. In the most recent years the industry kept bettering its trend while the company did not. The problem here seems to be a company's net income that in the last three years has practically remained the same. Recently the company is no longer capable to guarantee an increasing turnover to the owners.
From 1 to 17 the profitability deriving from the sales has increased at a faster pace then the industry. But in the last two years, despite a stead increase in sales, the company cannot achieve the same profitability as before. Somehow the costs of production or sale have affected the company more then in the past years. The company's declining trend is a wake up call for a deep analysis on costs and an eventual intervention to decrease them.
Once again the company's Return On Sale shows a positive trend till 17 after which there is a decline. The 17 seems to be an extraordinary year for the company that tops its results in terms of ROS. In fact it is the only year in which the industry figures are lower then the company's. Overall, not a good sign for Alberto Culver Inc. that is spending more than average to get some net income. Another sign of problems on the expenses and costs side.
The earnings per share increase from 15 all through 1, which is a sign of strength of the company, that continues to top its net income results.
Another point of strength is the asset turnover ratio, which is way higher than the average industry. The only point of concern is that the 1 company's ratio is the lowest since 15. Overall the company is handling a fair volume of sales in relation to the investments, and the sale management and sales policy are doing well.
The days receivable ratio shows a protective selling policy that allows the company to turn credits into cash faster than the industry average. The company's trend is for an ever more strict credit policy as the industry remains roughly steady. The company could use a less severe credit policy to gain more customers and widen its market share without compromising its liquidity.
The days inventory goes in the same direction. Merchandise is sitting for a longer period of time, now, on the company's warehouses then before and a more aggressive selling approach could help to get rid of the products faster, increase the sales and speed up the inventory turnover.
On the other hand the latter is definitely under the industry average and it says how the company is already employing selling channels and techniques better than the competition. The sales division is definitely of no concern and it could even be better off, as stated above, with a more permissive sale credit policy.
The company's current ratio is doing fine. The company shows a good capacity to pay its current obligations and has room enough to face any shrinkage in its current assets. Assuming the threshold of, set by Dun and Bradstreet, as good the company is quite close to it and to the industry's. Since the 16 the ratio has been increasing showing this is an area of no concerning.
The acid test ratio needs a little care. The company is not capable to pay its current obligations as quickly as the competitors and the company is not in a liquid condition. Creditors in cash or near-cash assets are not well guaranteed. Longer-term debts should be taken into consideration if the company wants to reach more customers granting them longer deadlines for payments, without further compromising its liquidity.
The debt/equity ratio shows a good proportion between the creditors' interests invested in the company and the owners' interests. Overall the company tend to have more external debts than its competitors but the difference is very slight and of no concern for now. The difficulties encountered in having a good stock value are not helping the company though. To focus on the core operations and increase efficiency will eventually result in an increased stock value and a better appeal for the financial investors.
The long run solvency of the firm, indicated by the debt ratio, is good and is bettering over the years. compared to the industry, it is consistently lower, showing the company's better position over the competition.
Alberto Culver has a high capacity to pay the interest on its debt, and this puts the company in a favorable condition to roll over debts at cheaper rates than average. The industry's ratio, in fact, shows a much worse situation for the competition.
The dividend yield reflects the flat performance of the company's stocks in the last two years of the analysis.The years from '5 to '7 show a diminishing dividend yield partially due to the growing value of the company's stocks. This alone was the appealing element for new stock buyers and the company did not have to lure new investors with high dividend. But in the last two years the poor performance of the stocks has caused the management to increase the dividend to offset the idleness showed towards the company's stocks. This is, in fact, a mid-size company in a period when the focus of attention is on large cap companies and mega-mergers. It operates and sells through traditional channels in what seems, at this time in the markets' cycle, a dot.com world.
The dividend payout ratio is healthy showing a dividend way lower than the earning per share. The rest of the earning per share can be used, therefore, for reinvesting and expanding purposes. The increase in the ratio from 17 once again shows the need for the company to defend the stockholders from the poor stocks performance of the last two years with a slightly higher dividend.
Conclusions and recommendations
The middle size of the company allows it to remain nimble and take advantage of its agility to exploit any market opportunity. This is much needed considering the company's net income in the last three years has practically remained the same. This can compromise the ability to guarantee an increasing payoff to the stockholders and attract the interest of the investors. This is happening despite a steady increase in sales. The company cannot achieve the same profitability as before. Somehow the costs of production or sale have affected the company more then in the past years. A sure remedy could be a larger customer base. The company has room to loosen its credit policy. More customers could be reached without compromising the company's solvency and this course of action would definitely enlarge Alberto Culver market share.
Partly the slow performance of the financial side of the company is due to the fast innovations in the way business is conducted, brought about by the Internet revolution. But as long as the company keeps its core strengths up there is no worry. The market will return to recognize the company's good overall condition. In the meantime, it is important that Alberto Culver continue to innovate, continue to build its positions in its markets and continue to present the strengths of the company to the institutional and individual investment communities.
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