PG – Solid Company but not a fit for my portfolio

PG - Procter & GambleProcter & Gamble is a leading consumer goods company in the world. It has become a leading household name and is a global leader in ten product categories.

The company’s reportable segments are Fabric & Home Care (32% of 2018 sales); Baby, Feminine & Family Care (27%); Beauty (19%); Health care (12%), and Grooming (10%). A few of P&G’s iconic brands are Ariel, Bounty, Head & Shoulders, Olay, Pampers, Gillette, Tide, etc.

Procter & Gamble operates through a large distribution network comprising of mass merchandisers, e-commerce, grocery stores, membership club stores, department stores, distributors, etc. The company sells its products in more than 180 countries and has on-the-ground operations in nearly 70 countries. Developed markets account for 65% of sales while developing markets constitute the rest. North America is P&G’s largest market accounting for 45% of sales, followed by Europe (24%), Asia-Pacific (9%), Greater China (9%), Latin America (7%) and IMEA region (7%).

PG Brands

Investment Data

Revenue Growth & Market Exposure

In the 181 years of its existence, the company has fortified its position as a leading consumer goods company globally. Procter & Gamble has an extensive product portfolio and an excellent retail network. Strong brand recall and a credible reputation for quality have allowed the company to build a loyal customer base from around the world. The company is also expanded digitally, recording 30% higher global e-commerce sales in the last year, and accounting for nearly 7% of P&G’s total business.

P&G’s consumer products have high growth potential in the rapidly growing emerging markets. Given its rich experience in consumer retail, the company has been evolving to meet the changing consumer preferences and thus remains the No.1 customer choice. In fact, many of Procter & Gamble’s leading products of today were conceived directly out of its customers’ needs and expectations.

P&G is shifting to a leaner business model by focusing on its core brands and selling off its non-core brands. About 65 of its brands account for 90% of the company’s revenues including 21 mega brands (each having annual sales of over $1 billion).

Procter & Gamble is currently implementing a multi-year productivity and cost savings plan for increasing its profit margins, which has resulted in $3.3 billion in annual savings (before-tax) since 2012. All these efforts are expected to deliver 1% higher long-term annual sales growth and drive cost savings of up to $10 billion over the next five years. The company continues to benefit from organic sales and volume growth and the course should continue on the back of strong market share trends. P&G is estimating its organic sales to grow at 4% for FY 2019.

Dividends

Procter & Gamble has an impressive 10-year dividend CAGR of 6.7%. The company is a dividend king with 63 years of consecutive dividend increases and 129 years of uninterrupted dividend payment. The company last raised its dividend by 4% and should be able to comfortably continue its low single digit growth streak in the future. Its current dividend yield stands at 2.8% and its dividend payout ratio is 70%.

P&G is a strong cash generator and has returned more than $3 billion of cash to shareholders during the last quarter, comprising of $1.9 billion in dividend payments and $1.3 billion in stock repurchases. Over the last decade, P&G has returned close to $135 billion to shareholders out of which $67 billion were in cash dividends.

The company is anticipating its core EPS to increase by 3%-8% and expects to pay over $12 billion in dividends and repurchases in fiscal 2019.

Procter & Gamble is driving productivity across its entire supply chain through digitized planning, multi-category manufacturing sites, supplier integration, and customer collaboration. The company is working across improving its product performance, packaging, supply chain management, and retail execution, to drive customer value.

Competition

Procter & Gamble operates in highly competitive markets. The consumer products industry is highly competitive. It suffers competitive pressure not only from well-known global corporations but also from large and small companies selling branded products as well as private label brands. Some of its leading competitors are Colgate-Palmolive NYSE:CL, Coty, Unilever, Church and Dwight Co. NYSE:CHD, etc. Colgate-Palmolive is one of the largest consumer products multinationals, focusing on oral, personal and home care and pet nutrition. However, P&G is in a good position to leverage from its global leadership position in the fast-moving consumer goods industry.

Bottom Line

Procter & Gamble has one of the strongest portfolios of trusted, quality, leading brands which caters to millions of consumers worldwide. The company should benefit from a rising trend of consumerism in emerging markets. Given its leadership position in the consumer retail industry, Procter & Gamble’s businesses are well placed to grow organically. The company is witnessing good sales growth in the US, China, and online channels. It will be difficult for new entrants to replicate P&G’s global presence, extensive scale, brand power, and the large product portfolio.

PG is a solid company providing products that we use daily. I used to own it but the growth was disappointing for a growth portfolio in the accumulation phase. At this point, the S&P500 will provide you with a similar performance without the downside of owning one stock. The dividend growth is simply just keeping up with inflation and not really providing with accelerated growth. I would say there is room for one of the consumer packaged goods in a growth portfolio, just pick wisely.

PG vs Indexes

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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