Procter & Gamble Co. (PG, Financial) is an Ohio – US based FMCG and Consumer Goods multinational. The company was founded in 1837 by William Procter and James Gamble. In the one and a half century business, the company has grown by leaps & bounds and diversified into multi dimension product portfolio. The diverse product profile includes Beauty & Hair Care, Baby care, Toiletries, Fragrance, Personal Grooming & Hygiene, Oral Care, Food (Snacks), Pet care and much more. Some of the popular products of the company are Oral B, Olay, Tide Detergent, Head & Shoulders, Pantene, Pringles, Gillette, Vicks, and Fragrances – Escada, Dunhill, Hugo Boss, Tampex, Pampers and many more.
Management Equations
On Jan 21, 2015, P&G announced a top management reshuffling. David S. Taylor moved from global Health and Grooming division to the global Beauty Unit replacing Deb Henretta, who will now oversee the global online business of P&G. Beauty segment contributes to 40% of the revenues generated every year. Both Taylor and Henretta are considered amongst a small group of contenders being nurtured to eventually succeed the company’s CEO A. G. Lafley.
Besides the reshuffling on the management front, the company is also reshuffling its product portfolio. P&G recently sold off 100 slow moving products / brands which included Duracell, soaps and Pet food division.
Market Outlook
The growth in the consumer spending on FMCG sector is slowing. In June 2013 the figure stood at 8.8%. A year later in June 2014 the figure dropped to 7.5% and it is expected to further slow down and hit 7% mark in June this year. This slowing consumption of FMCG products in the emerging Asian and Latin American economies has caused this dwindling growth. Up until few years back the rise in consumer spending power of these new economies was able to sustain the growth rates and ROI in FMCG and Consumer goods companies of global giants like P&G. In view of the future posing increasingly challenging times for the sector, the top management reshuffling in P&G is also seen as a preparatory measure.
Stock Talk
Over the past few years the stock has been slowly and steadily rising and the current valuation is high. P&G is a very popular stock amongst the domestic and international investors due to its high dividend history in past 58 years. Despite the tumultuous US and European economy the company manage to give a Compounded Annual Growth Return (CAGR) of 8% in the past 5 years and the stock grew by 12%. This would be considered as a good show by the stock. But all is as good as it appears on the outside. The company has failed to synchronize the raise in EPS as compared to the dividend growth in the past 5 years whereas the payout ratio exceeded 70%. With a payout ratio as high as in case of P&G the possibility of dividend growth exceeding EPS growth is lowered significantly in the long run.
Competition
The stock competes fiercely with many companies across its product category. But P&G is always pitted against its European arch rival Unilever PLC. (UL, Financial), which is a much smaller company in terms of size and market cap, yet a strong contender from investor perspective. Colgate-Palmolive Company (CL, Financial), Estee Lauder Company Inc. (EL, Financial), Ecolab Inc. (ECL, Financial) are some of its competitors.
Conclusion
If you are an investor holding the stock at present then it is advisable to hold back your position for some more time as the company still seems to have lot of ammo still left in its arsenal and the prospects do look favourable. With the strong positioning and risk spread over multiple brands and multiple economies, the stock is expected to rally further in the northward direction hence investors can include P&G into their portfolio. It is also recommended that some of P&G’s competitors can also be considered in the list of new additions as well since the consumer ambience looks favourable for the FMCG sector.
