22 Apr Procter & Gamble (PG)
A lot of the time in these stock reports we tend to navigate towards the more exciting companies. Some that you may not have heard of, some that have been beaten down and poised for a comeback, and some that are about to take on the world and make massive returns. However, for most of us, we can’t have our portfolios entirely centred around these stocks. There’s a certain amount of risk involved in the more adventurous picks. Sure, they can stand to gain us the most amount of money, but the odds are also higher that they’ll take a fall, or wither on the vine for the next decade.
It’s always important to have a nice mix in your portfolios. Some up and comers, some educated bets on the “next big thing”, and a solid core of your dependable everyday stocks. Ones that won’t ever shoot the lights out, but just keep chugging away in the background earning you similar returns to the market each year, and keeping your stock portfolio nice and honest.
Today’s stock report subject Procter & Gamble is definitely one of the latter. It’s not exciting or flashy, it’s not going to give us double-digit returns anytime soon, but it’s undoubtedly a dependable cash-making machine and a company that’s slowly turning into an online mega-cap with current sales of more than $70 billion worldwide.
P&G is an American multinational consumer goods company based out of Ohio in the US. During the 2010’s it went about streamlining its business by selling more than 100 brands out of its product portfolio and leaving it with around 65. However, it was these 65 that brought about more than 95% of the company’s profits. Out went its huge food, snacks and beverage segments, which contained such well-known brands as Pringles, Crisco, and Folgers, leaving it with the core essentials it maintains today. At the time the CEO said the future would be “a much simpler, much less complex company of leading brands that’s easier to manage and operate”. Its success since then is a testament to this.
These days the focus is on personal/consumer health and personal care and hygiene products whose segments include beauty, grooming, health care, fabric and home care, and baby, feminine, and family care. There’s very little chance you’ve never purchased some of their products. You’ve most likely got a few in your house right now. Its more famous brand names include titles such as Pampers, Tide, Bounty, Tampax, Braun, Gillette, Head and Shoulders, Pantene, Old Spice, Cascade, Dawn Ultra, Ambi Pur, Gain, Oral-B, Metamucil, Vicks, and Olay, amongst many others. It’s the “big dog” of the personal health care industry.
P&G posted earnings again this week, and as ever it was a reliable win on both the top and bottom line. They’ve been beneficiaries of the pandemic, with an increase in sales of cleaning supplies which analysts predict will continue into the future. And with economies reopening again consumers are starting to purchase beauty and grooming products that were abandoned during lockdowns. Sales of shaving supplies were up by more than 20% in the quarter, strongly suggesting that more than a few lockdown beards were grown during 2020. Net sales rose by 5% to $18.1 billion, higher than analysts predictions of $17.9 billion, while organic revenue grew by 4% in the quarter. Profit of $3.27 billion was up from $2.92 billion a year ago.
An important factor for mine, that was only briefly touched upon was that e-commerce sales accounted for 14% of sales worldwide. New CEO David Taylor has made P&G’s online presence a priority. The previous quarters’ online sales accounted for around 11%, and that’s up from 6% a year before that. Things are certainly moving in the right direction and it’s where the future lies. Direct-to-consumer shopping has become the norm during the pandemic and there is no reason to see this slowing down. The good news is that P&G has the brand recognition, the cash and the power to take back lost ground and become an online powerhouse.
Financially they are as strong as they’ve ever been. Expenses have been falling for years now, they have the highest profit margins in the sector, and their cash flow rate is second to none. They’re expecting to return more than $18 billion to shareholders over the next year in the form of dividends and share buybacks which sits nicely with its history of giving back. The company has offered a dividend for 129 years now, and have raised it for the last 63 years straight. That’s quite an impressive achievement.
The bottom line is that P&G is a juggernaut that will only increase its power as it moves towards a more online presence. Year to date the share price is slightly down as it failed to rise with the rest of the market. I suspect it’s only a matter of time, however, before it starts rolling again. Over the last year, it has returned a solid 15%. As I said earlier, it’s not going to smash the lights out, it’ll just be a dependable little earner. It’s a great long term hold and a stock I would be looking to pick up on any pullbacks.