Procter & Gamble Company (PG – Free Procter & Gamble Stock Report), a consumer products heavyweight and Dow-30 component, delivered fourth-quarter results (year ended June 30th) today that were higher than expectations on the earnings front, but a touch shy on the revenue line. The investment community appears to be focusing on the bright side, as the shares are up nearly 3% in early morning trading.
Earnings came in at $0.82 a share, a nickel ahead of both our and Wall Street's consensus. Strategic price increases spurred the outperformance led by stout sales of some of its feature brands; Gillette razors, Crest toothpaste, and Tide washing detergent. All told, however, overall sales slid 1%, to $20.21 billion, as the negative effect of currency swings were felt. The strong bottom-line showing brought the full-year figure to $3.85, but it is worth noting that restatements for the first two quarters of fiscal 2012 are expected when PG releases its annual report.
Looking ahead to fiscal 2013, management began its guidance on an upbeat note by stating that it plans to buy back $4 billion in shares during the campaign. This plan is a reversal from just two months ago when news broke that no share repurchases would occur. Still, management is walking a fine line trying to balance growth in emerging markets, which currently comprise just under one-third of its sales, while facing the headwind of an uncertain global economy. Too, market-share growth has been a difficult metric of late. Global market share was off half a percentage point in the June period and on a category-by-category basis many line items have been flat on the market-share meter. Regardless, we think the company can still earn $4.00 a share in the current fiscal year, and have raised our bottom-line target by a nickel to sit at that mark.
The effects of a $10 billion restructuring plan have begun to be felt companywide. Job cuts are in full swing, and the majority of the 10% planned reduction should be completed by the end of the calendar year. The moves should begin the process of offsetting slowing growth in developing nations. Figures here were dealt a blow when price cuts were mandated in Venezuela and import curbs were put in place in Argentina. Many industry pundits are pointing out the fact that they think the restructuring will lead to more cutting than just the $10 billion specified. We are taking a wait-and-see approach on that front.
Elsewhere, the divestiture of the company's snacks business, headlined by Pringles potato chips, was completed. Kellogg (K) bought the division after a deal with Diamond Foods (DMND) unraveled due to accounting issues at that company.
Outside of the earnings and operating results, much of the recent press around PG has stemmed from Pershing Square's Bill Ackman initiating a stake in the company. Mr. Ackman has a track record of calling for changes at a number of his previous stops. The ousting of top executives, and large-scale asset sales to enhance a company's value have been his "modus operandi". Having such a man in the picture has fueled flames that perhaps the company is too big to effectively manage. Although the blue chip’s long record of success casts some doubt on that thesis. Currency exposure is on the top of the list in this regard. While a split in essence is always a possibility, we are not on board with this view and find it highly unlikely at this juncture.
From an investment standpoint, we like this blue chip for long-term capital appreciation. Too, those getting on board now will have their patience rewarded by a dividend payout that should stay securely above 3% annually out to late decade.
About The Company:The Procter & Gamble Company makes detergents, soaps, toiletries, foods, paper, & industrial products. Brands include: Always, Head & Shoulders, Olay, Pantene, Wella, Actonel, Dawn, Downy, Tide, Bounty, Charmin, Pampers, Folgers, Iams, Gillette, MACH3, Braun, and Duracell. Acquired Gillette in October, 2005, and divested Folgers in June, 2009. U.S. sales accounted for 37% of total revenues last fiscal year, while Wal-Mart (WMT – Free Wal-Mart Stock Report) Stores accounted for 15%.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.