The Procter & Gamble Company (NYSE: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.
PG's cash-flow and balance sheet is rock-solid, with a high investment-grade credit rating. Spinning off the Pet Foods business seems like a positive step, also. PG is your classic consumer staple stock, with pretty consistent low to mid-single-digit organic revenue and volume growth. Roughly 40% of its revenues come from emerging markets, so the currency turmoil in Latin America in early 2014 was a buying opportunity.
PG's dividend yield is right around 3% and the dividend is about two-thirds of total free cash flow. Sales grew by 3% for the consumer goods giant, at the low end of its full-year guidance. Meanwhile, profits ticked higher by just 5% despite huge cost cuts.
- Warning! GuruFocus has detected 3 Warning Signs with PG. Click here to check it out.
- PG 15-Year Financial Data
- The intrinsic value of PG
- Peter Lynch Chart of PG
The payout ratio is now above 60% of average earnings estimates for the fiscal year ending in June, so future dividend increases will probably need to be in line with earnings and cash flow growth, since the payout ratio doesn't offer a lot of room for expansion.
It's not easy for a giant in a mature industry to accelerate growth in highly penetrated markets like the U.S. and other developed countries. In emerging markets, where the company still has considerable opportunities for growth, currency fluctuations have been a drag on performance lately, so Procter & Gamble has been generating uninspiring growth rates in recent quarters.
On the other hand, the company is a global juggernaut with huge scale and enormously valuable brands: Procter & Gamble owns 25 brands generating over $1 billion in revenues around the world, and it serves nearly 4.8 billion customers in more than 180 countries.
This has provided the strength for the company to sustain capital distributions through good and bad times: Procter & Gamble has paid uninterrupted dividends for 124 consecutive years, and increased distributions over the past 58 years in a row.
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. 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.
There's something special about P&G. Its growth prospects are interesting. It pays a good dividend. While it doesn't garner the notoriety of high-flying growth stocks, it's 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.
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 favor 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.
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.