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Procter & Gamble: January-March (JFM) ‘17

| April 28, 2017
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P&G announced results from its JFM ‘17 quarter, delivering profit ahead of Wall Street estimates and sales slightly below estimates.  These results represent the third quarter of P&G’s 2017 fiscal year.  P&G saw organic sales growth of +1% behind shipment volume with organic sales and volume growth across 3 of the 5 operating segments.  P&G also held or gained market share in 36 of their top 50 country/category combinations.  This quarter also saw the 61st consecutive annual dividend increase with a +3% increase approved by the Board of Directors.

Some key highlights for the quarter:

  • Organic Sales Growth – While ‘net’ sales growth was down -1%, ‘organic’ sales growth increased +1%. Organic sales growth takes net sales growth and excludes the impacts from foreign exchange and acquisitions and divestitures (A&D), which better defines growth generated within the company.  This quarter’s growth was yet again volume driven, and it occurred across 3 of the 5 reportable segments.  P&G reiterated its full year organic sales growth guidance of 2-3%; however, cautioned that if category growth did not accelerate, year-end organic sales would likely fall in the low end of that range.
  • Operating Segments – P&G is divided into 5 operating segments: Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine and Family Care. Organic volume and organic sales numbers for the quarter are:

Segment

Organic Volume

Organic Sales

Beauty

-%

1%

Grooming

-%

(6)%

Health Care

4%

6%

Fabric & Home Care

1%

1%

Baby, Feminine & Family Care

1%

1%

Total P&G

1%

1%


The lower organic sales growth numbers for the quarter were largely driven by deceleration of category growth rates.  Categories grew by +3% in the first half of the fiscal year and saw less than 2% growth in the third quarter.  Grooming sales declined primarily behind continued competitive efforts in the US business.

  • Continued Cash Focus – P&G reiterated its cash friendly position with regards to shareholders. The company expects to pay out over $22 billion to investors this year in the form of dividends (>$7 billion), direct share buybacks (>$5 billion) and share buybacks through the Coty exchange ($9.4 billion).  P&G returned $5.4 billion in dividends and $4.5 billion in direct share buybacks in the first three quarters of the fiscal year.
  • Strategically Focused – P&G is now a 10-category company after the most recent round of brand divestitures. It is committed to competing in the 10 largest, most structurally attractive categories where P&G holds market leading positions.  Their focus is not just on growing their market share, but rather growing the market as a whole.  They intend to do this while focusing on the balance sheet (inventory days, days payable, etc.) as well as the profit and loss (P&L) (net sales, gross margins, etc.).  They have also stated they will not compete in the lowest priced tiers where products are easily commoditized, but they will rather offer smaller pack sizes to cash strapped consumers, providing a win for the company and the end user.

As previously noted, P&G is in a transformation period.  With a relatively new CEO and one of the largest brand divestiture programs in the company’s 178 year history currently underway, it will take some time for all the moving parts to settle out.  Provided their efforts to grow the topline, reduce costs and remain a company that puts the needs and wants of the consumer first, the renewed focus and efforts they have underway should play out in their favor.

P&G is an example of the type of stock that we use to build The HCM Dividend Growth Portfolio™.  This portfolio provides the opportunity for appreciation that comes from equity exposure, while giving investors a growing stream of income through market cycles. 

If you want to walk through this together or just talk about P&G, feel free to reach out to me at jim@hengeholdcapital.com.

Date Posted: 4/26/2017 Advice provided in this article is meant for educational purposes only and financial education is important to us.  This article should not be taken as advice to buy, sell, or hold P&G stock. Before making decisions regarding your personal financial situation, please consult an advisor or conduct your own due diligence.  If you would like to discuss your P&G Retirement Income Plan with an HCM Wealth Advisor, please give us a call – 513-598-5120.  Located in Cincinnati, Ohio, we serve clients in 23 states, and we’d love to help.    

 

 

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