TOKYO -- Household-goods maker Unicharm is struggling to regain ground in Asian markets, with its once- thriving diaper business in China and Indonesia now weighing down earnings.
The Tokyo-based company said Friday that group operating profit for the first nine months of this year totaled 51.4 billion yen ($498 million), a paltry 3% increase from the same period a year earlier.
The announcement was made during trading hours here, pushing Unicharm's stock price down nearly 7% to 2,360.5 yen at closing.
"We had anticipated the company was going through a rough patch, but the results were even worse than expected," said Masashi Mori, research analyst at Credit Suisse Securities (Japan). Unicharm saw operating profit edge up 3% to 15.6 billion yen during the July-September quarter, falling far short of guidance calling for a 29% jump to 19.6 billion yen.
Unicharm's slump stem mainly from its underperfoming Asian diaper business outside Japan. In China, the company continued to suffer operating losses amid increasing competition from Kao and U.S. makers. In Indonesia, soaring advertising costs and inventory-related expenses hurt Unicharm, with its diaper operations falling into the red.
Robust domestic earnings ensured a group operating profit gain for the half, but Unicharm's troubles in what should be growth markets have become worryingly clear.
With standards of living rising rapidly, consumers in many Asian emerging economies increasingly demand high-value-added products, including for diapers. Japanese rivals Kao and Daio Paper, as well as Procter & Gamble of the U.S., have all capitalized on this trend. But Unicharm, which initially pushed low-priced items as it made its way into these battlegrounds, has lost market share. This has forced the company to spend more on marketing.
Unicharm's overall operating profit margin in Asia -- it also sells feminine hygiene products and other items in these markets -- has fallen from double digits until 2014 to just 6.2% in the January to September of this year. That is less than half of the 15.8% it earned in Japan.
The company has left full-year guidance unchanged, forecasting a 4% rise in consolidated operating profit to 83 billion yen. Unicharm intends to boost exports of Japanese-made diapers to China, where it also aims to increase online sales. In Indonesia, it plans on shifting its focus to midrange and high-end products.
But Unicharm has made it only 62% of the way to its profit forecast with just one quarter left. Its shares look pricey compared to Kao's, trading at 33 times forward earnings versus 21 times. The prospect of a rebound looks dim.