GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Procter & Gamble Looks Potentially Lucrative: May Boost Returns to Investors

February 20, 2014 | About:
abirk

abirk

3 followers

The Procter & Gamble Company (PG) is focused on providing consumer packaged goods. The company's products are sold in more than 180 countries and territories worldwide primarily through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons, e-commerce and high-frequency stores, and the neighborhood stores, which serve many consumers in developing markets.

The Story So Far

Procter & Gamble boasts of a strong dividend track record — over the past six years it has more than doubled its quarterly dividend payment. Procter & Gamble has paid dividends for 122 years. In its 2012 fiscal year, the company spent $9.3 billion on marketing, including advertising on television, radio, print, digital and in-store ads. About a third of P&G's revenue comes from North America, which is the biggest market for its media spending. Procter & Gamble is currently offering investors an opportunity to buy portions of the company at $81 a share. According to the 2013 annual report, sales growth was 3% year over year. Core EPS rose 5% year over year. Additionally, P&G is investing for future growth. EPS is expected to grow over 8% this year.

P&G has increased its dividend payment to reach slightly more than $0.60 per share in 2013. This puts the company's annual yield at 3%. More than 20 of P&G's brands generate $1 billion or more in revenues per year and they are extremely popular. P&G's growth prospects are interesting. There's something special about P&G. It pays a good dividend. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine.

Recent Figures

P&G recently reported a 3% increase in its revenues compared to the previous year. The company earned $1.18 per share on revenue of $22.28 billion for the quarter, and it seems to be on its track to achieve mid-single digit earnings growth year over year.

Changing Approach towards Emerging Markets

P&G's new approach toward emerging markets has started to pay off. Considering that global revenue only represents 40% of P&G's total revenues, a successful emerging market strategy could become a massive growth catalyst. P&G is adding premium products throughout its closet of brands.

Ruling the Indian Market

Regional players had over 15% share in the toothpaste market some 10 years ago. Multinationals like Procter & Gamble are largely gulping the market share. Big players in the oral-care space also wooed consumers with value-added products that offer extra benefits at a small premium to the basic white toothpaste that most regional players sell. The successful entry of P&G to the market since 2011 also affected small regional players. P&G's mass brand Oral B has garnered a market share of 30 basis points in the first six months of its launch. The Indian oral-care market is currently valued at 7,000 crores which definitely goes in favour of this company. As more and more regional players are losing out to these multinational companies, P&G surely has potential in this part of the globe.

What the Future Would Be Like

The company is planning to spend more on advertising, and its growing emphasis on digital media reflects both the shift in where consumers are focused and a desire to increase the effectiveness of the money it spends. Company executives say digital media in many cases is proving to be a faster and cheaper way for P&G's brands to reach consumers, and feedback is also faster. The CEO, who previously ran the company from 2000 to 2009, said P&G will sharpen its focus on product innovations, cut costs and execute well with core brands and its most important markets. He said P&G also has a plan to revive its Pantene and Olay beauty brands, which have been losing share to rivals in recent years.

Procter & Gamble Co. is aiming for a sales boost of more than $150 million from advertising and promotional campaigns around the Sochi 2014 Olympics. The company is planning on activating in the markets where the Olympic Winter Games are most relevant, such as Russia, the U.S., Canada, Germany and Poland.

The maker of Pampers diapers and Tide detergent is considering a merger of its Western European unit with its Eastern and Central Europe business, while its Indian business will combine with the Middle East and Africa to form another group. P&G chief executive A.G. Lafley said the consumer products giant's digital spending on things like online ads and social media ranges from 25% to 35% of its marketing budget and is currently near the top of that range in the U.S., its biggest market.

To End

The company is investing in projects which will produce greater returns to its investors. Combined with its earnings growth and share buyback activity, P&G will provide valued returns to its shareholders. P&G serves approximately 4.8 billion people around the world with its brands. The company has one of the strongest portfolios of trusted, quality brands. P&G has always commanded brand loyalty among consumers. One of the most important ways it fuels investments in innovation and brand building is through cost savings and productivity improvements.

It is a solid company overall with improving technicals and is one of the most respected brands globally. It may be a good bargain moving forward, and with its worldwide brand recognition and presence, it is bound to be around well into the future.


Rating: 4.4/5 (7 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide