Cosmetic Package Manufacturers Gain Less Affected by the Declining Economy
- Chaileedo Press
- Dec 1, 2022
- 5 min read
Estee Lauder, Shanghai Jahwa package material supplier Zhejiang Jinsheng New Material Co., Ltd. (hereinafter Jinsheng) operating income fell 2.18% year-on-year, net profit attributable to shareholders of listed companies fell 79.09% over the same period last year. Another package material supplier Shenzhen Baixinglong Creative Packaging Co., Ltd. (hereinafter Baixinglong) was also declining in its cosmetics business revenue year by year.
This year, CHAILEEDO noted that China's consumer market as a whole is showing wilting. From January to October, the total retail sales of consumer goods was 360.5755 trillion yuan (about $50.9 trillion), down 0.5% year-on-year. The total cosmetics category was 308.4 billion yuan (about $43.5 billion), down 2.8% year-on-year. Since this year, the total retail sales growth rate of cosmetics has remained at the lowest level in five years and has been negative for three consecutive months.
When the cosmetics market as whole declines, cosmetics-related industries will also be affected and cosmetic packaging companies are in a hard time.
Weak consumption and a declining economy causes the slump
Jahen Household Products Co., Ltd (hereinafter Jahen), one of China's package material manufacturers, released its 2022 third quarterly report. From January to September, Jahen achieved operating revenue of 763 million yuan, down 8.29% year-on-year, and net profit attributable to the mother was 48.3 million yuan (about $6.8 million), down 25.07% year-on-year. In particular, the net profit attributable to the parent company was down by 28.67% year-on-year in the second quarter, which was the largest drop since going public.
From the main customers of Jahen, most of them are well-known Chinese domestic and international daily chemical and cosmetic companies, such as Johnson & Johnson, Shanghai Jahwa, BTN, Yumeijin, Pechoin, Victoria's Secret, Shell and other well-known brands, with high concentration of customers. Among them, in the first half of this year, the revenue of its five customers Johnson & Johnson, Shanghai Jahwa, BTN, Yumeijin, Shell accounted for 81.33% of its total revenue. Jahen said that its revenue and net profit both fell largely because the restriction affected its production, logistics and terminals.
The same happened to Jinsheng. The packaging supplier Jinsheng's operating income fell 2.18% year-on-year in the first half of this year, and net profit attributable to shareholders of the listed company dropped 79.09% compared with the same period of the previous year. Jinsheng is the packaging material supplier of Estee Lauder, L'Oreal, Shanghai Jahwa and other well-known Chinese and international cosmetic companies.
The company said that the main business gross margin of Jinsheng in the first half was 14.55%, down 12.60%. In the same period last year, the figure was 27.15%. For the revenue and net profit have declined in the first half year, Jinsheng stated that its customers, cosmetic brand selling worse is also a major factor. After searching the financial report of main customers of Jahen and Jinsheng, CHAILEEDO found that Johnson & Johnson, Shanghai Jahwa, Estee Lauder and so on have declined to varying degrees.
Johnson & Johnson's consumer health business is the only segment where Johnson & Johnson's revenue declined from January to September. In the previous quarter, the segment's revenue was $3.805 billion, down 1.3% from the same period. The consumer health business, to which beauty and personal care products belong, reported third-quarter sales of $3.795 billion, down 0.4% from the same period last year.
Shanghai Jahwa's recently released third-quarter financial results show that from January to September, Shanghai Jahwa reported operating revenue of 760 million yuan (about $107.3 million), down 8.29% year-on-year, and net profit attributable to shareholders of the listed company of 48.3 million yuan (about $6.82 million), down 25.07% year-on-year. In terms of categories, the skin care category, which includes Dr. Yu, Herborist, GF, Shuangmei and Maxam, reported revenue of 453 million yuan (about $64 million), down 15% overall.
Estee Lauder Group's latest financial results show that in the first quarter of the fiscal year 2023 (July-September 2022), Estee Lauder Group's total net sales were $3.93 billion, down 11% year-over-year, with organic sales down 5%. its net profit also fell 29.33% year-over-year to $489 million.
Rising raw materials and declining consumer power cut the profit of package suppliers
CHAILEEDO noted that the rise in raw materials is another major factor in the lower profits of package dealers.
Package supplier Baixinglong, which provides creative packaging services for famous brands such as L'Oreal and Dr. Alva, said in its prospectus that the direct materials of the company's packaging products are mainly various types of raw paper products. During the reporting period, the ratio of direct material cost to the main business cost of the company was 28.09%, 25.78%, 27.68% and 29.89% respectively. It can be seen that the company's direct material costs accounted for nearly one-third of the main business costs. If the direct material costs fluctuate significantly, the company's costs will also change.
Baixinglong said that with the tightening of environmental protection policies and relevant Chinese domestic policies in recent years, the price of paper products fluctuated significantly during the reporting period. Meanwhile, according to CLS.CN, in June, several paper companies issued price increase notices, saying that their white cardboard series was raised by 300 yuan/ton (including tax) from July 1 due to high production costs.
Jahen also mentioned in its semi-annual report that the main raw materials that account for a large proportion of the company's purchases are PE, PP and other synthetic resins as well as surfactants and other raw materials and that raw material prices are one of the important factors affecting the company's profit level.
It is reported that PP is used in the packaging of conventional daily chemical products. "In addition to some high-end cream products, almost most of the skincare products and toiletries use PP. Meanwhile, PP is also used in general plastic pump heads, vacuum bottles, etc.," a cosmetic packaging material supplier introduced to CHAILEEDO.
PE and PP belong to the downstream products of petrochemical industry and their prices are greatly affected by the fluctuation of international crude oil market prices. In the first half of 2022, international oil prices climbed sharply and then oscillated at a high level. The average price of Brent crude oil futures was USD 104.94/barrel, up 37.27 % month-on-month and 60.90 % YoY. Among them, the average price in the first quarter was USD 97.90/barrel and the average price in the second quarter was USD 111.98/barrel. Oil prices directly affect PE, PP material production costs. Since the first half of this year, crude oil prices continue to rise and continue to break new highs, which also brings considerable pressure on the petrochemical downstream industry.
An industry insider told CHAILEEDO that the rise of raw materials is one of the factors. The other factor is the lack of downstream consumption power, resulting in the plant and cosmetic brand demand is not high. It also leads to oversupply. The two sides cuts the profit of the package manufacutures and ultimately led to the manufacutures decline.
The economic downturn, declining consumer power and other issues are shown in this year. For cosmetics-related companies, 2022 is undoubtedly a tough year.
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