Trian Fund Management bought its largest position in a company, purchasing a $3.5 billion stake in the struggling Procter & Gamble Co. (NYSE:PG). Procter & Gamble stock ended Tuesday's trading at $87.86. The company's stock has remained largely stagnant over the last two years when the company's shares hovered near $85.
The company's brand has a market value of $225 billion with revenues exceeding $74 billion in 2015.
The company's large portfolio of products includes many unprofitable brands that Procter & Gamble aims to offload. Management is working to reduce the company's product lineup over the past two years with little boost to the company's stock.
Coty Inc. (NYSE:COTY) purchased 41 brands from the company last year, with COVERGIRL and Clairol being two of the largest. The purchase value of the brands was $12.5 billion.
- Warning! GuruFocus has detected 6 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
Trian's stake in the company has investors certain the company will influence Procter & Gamble to reduce their product lineup further. Analysts suggest that the fund can argue that the company's brand sales last year weren't enough to spur growth.
Skin care products remain a weak point for the company. The division has suffered continued losses despite measures to cut back on costs and product offerings.
Trian may pursue board representation in Procter & Gamble. The deadline for nominating directors is June 13, giving the fund four months to work on an agreement with Procter & Gamble. Trian's position on joining the company's board remains unclear.
Procter & Gamble's quarterly report last month put its health-care unit as the best-performing business in the company. Oral-B is among the brands in the segment. The company warned that it will reduce sales growth for 2017 by as much as 3%.
Investors opening trading accounts found shares for Procter & Gamble up 2% in premarket trade on Wednesday.
Procter & Gamble's earnings per share hit $1.08, revenue reached $16.86 billion, and organic sales grew at 2%. All figures met or exceeded analyst expectations.
Geopolitical disruption is to blame for some of the company's growth woes. The company is dealing with uncertainty in many markets including Egypt, Argentina, Nigeria and Turkey where difficult operating environments are impacting the company.
Market contraction in Russia is also posing a real challenge for the company.
Currency devaluation in key countries, such as Mexico and the U.K., are hurting the company's bottom line. CEO David Taylor has led the company since Nov. 1, 2015, helping the company's shares gain 15%.
Wall Street suggests that Trian may make the case that Procter & Gamble needs to work faster to grow shareholder value and may recommend splitting the company up.
Disclosure: The writer does not have a stake in the companies mentioned.
Start a free seven-day trial of Premium Membership to GuruFocus.
About the author:
Jacob Maslow is a writer and marketing specialist who began his career as a payroll manager. The same affinity for numbers that originally led him to an early career in accounting now comes in handy when it comes to understanding and working with marketing analytics.
A native of New York, Maslow is now based in the Middle East, where he lives with his wife and five children and provides high-quality services to clients in a variety of industries, including the legal, medical and financial sectors.
In addition to his marketing and consulting work, Maslow has founded a variety of news websites, including Legal Scoops and Daily Forex Report. He is a frequent contributor to a variety of publications including business.com and business2community.com.