SCA Says Strategy to Counter P&G’s Incontinence Push Is Working

Svenska Cellulosa AB, the world’s largest maker of incontinence products, said it’s winning the battle to defend its position after Procter & Gamble Co. entered the European market for adult diapers.

“So far, from our perspective, our tactic is working,” Chief Executive Officer Jan Johansson said today after SCA published third-quarter results. “You can never underestimate such a big and good player as Procter. But we do have an extremely strong brand.”

P&G’s return to the incontinence market it exited when selling its Attends business in 1999 represents a threat to one of SCA’s most lucrative and fast-growing product categories.

SCA has annual sales of more than 10 billion kronor ($1.36 billion) for Tena-branded incontinence pads and pants, and commands about a quarter of the global market. Since P&G introduced its Always Discreet line of products in the U.S. and some European markets this summer, the Swedish company has reallocated advertisement and promotion funds to safeguard its stake.

“We continue to be concerned by the headwinds from P&G re-entering the incontinence segment, rising raw materials and no price increases announced,” Haakon Aschehoug, an analyst at DNB ASA, said in a note to clients today.

Chinese Tissue

Third-quarter operating profit excluding some items rose 16 percent to 3.04 billion kronor ($415 million) and compared with the average estimate in a survey of analysts by SME Direkt of 3.06 billion kronor. The adjusted operating margin was unchanged at 11.4 percent in the quarter compared with a year earlier, missing the average estimate of 11.7 percent, as the consolidation of Chinese tissue manufacturer Vinda bit into margins.

P&G Chief Financial Officer Jon R. Moeller said last week his company captured more than 9 percent of the U.K. incontinence market since it started selling pads and pants there in July, and described adult incontinence products as an attractive $7 billion global category with a 7 percent annual growth rate.

Johansson said P&G have captured some volume in the U.K., “though maybe not as much as they themselves had hoped.”

There’s also a silver lining to the increased competition. SCA estimates that less than 40 percent of Europeans affected by incontinence use the products offered by SCA and its competitors. In emerging markets, market penetration is even lower.

Promotional Push

SCA hopes its U.S. competitor will help raise awareness for incontinence products and help grow the total market. In the U.K., the incontinence market has had a 18 percent boost since P&G’s entry and SCA’s sales rose by 5 percent, the Swedish company said. The spike is explained in part by P&G’s promotional offers, according to Johansson.

’’I think they will drive penetration but definitely not by 18 percent,’’ he said, adding it’s too soon to say what the impact of P&G’s thrust will be. ’’It takes a year or even two to see how consumers respond to the products.’’

SCA’s shares fell as much as 4.5 percent, their steepest intraday decline since Jan. 29. The stock slumped 4.8 percent to 161.8 kronor at 12:05 a.m. local time, making it today’s biggest loser on the Nasdaq OMX Stockholm 30 Index.

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