Procter & Gamble (PG) is a multi-national company that produces hundreds of products in a variety of industries. In the last decade, the stock returned 55.84%, excluding dividends. The company sells products all over the world, and many investors think that P&G is done growing. The fact is, P&G is far from done with growing.
Past and Present
In the last decade, the company increased its annual net sales from $39.2 billion to $82.6 billion. It increased its net earnings from $3.12 per share to $3.93 per share. In total, 65% of the company's revenue came from developed nations and 35% came from developing nations such as China, Russia and Brazil. Two years ago, only 33% of P&G's revenues came from developing nations. More specifically, 25% of the company's revenues came from Asia and South America. Currently, the company's customer base is 4 billion people, 58% of the World population. Annually, the company sells 40 billion products every year.
P&G has 24 product brands with annual revenue above $1 billion each. For example, one of the company's most successful products is Gillette, a product more than a billion men all over the World use to shave. Another example, P&G Brazil increased its revenues by 700% in the last decade. Currently, P&G's toothpaste brand, Crest, reaches more than 2.3 billion people all over the World.
The company's goal in the near term is to grow its revenues at a 2% higher rate than the market. The company also expects to increase its EPS by 8-12% annually. The company plans to accomplish this by having free cash flow productivity above 90%. Currently, the P&G's free cash flow productivity is at 84%. The company invests $2 billion a year on research and development, and it plans to increase its ever-growing product portfolio. P&G expects to sell 60 billion products annually by 2015.
The company recently announced that it would lay-off 5,700 employees in the next 18 months in order to become leaner and more profitable. This constitutes 10% of the company's non-manufacturing jobs. P&G hopes to save $10 billion from job cuts in the next 5 years. The company also announced other measures in order to increase profitability.
The company has a strong history of dividends. It has been paying dividends non-stop for the last 121 years, and it's been raising its dividends every year for 55 years. Last year, P&G increased its dividend per share by 9%. P&G prides itself with the return it provides to the shareholders, and the company's dividends should be pretty safe for a long time. The company's current dividend payout ratio is 53%.
P&G competes with hundreds, if not thousands of companies all around the world. The company's competitors produce and market products in beauty, fabric and home care, healthcare, grooming, snacks, pet care and baby care categories. One of P&G's largest competitors is Johnson & Johnson (JNJ). This company produces and markets baby care, skin and oral care, nutrition and women's health products in its consumer segment. Recently JNJ has been struggling with growth, and the company is likely to go through some kind of restructuring soon. One of the major shareholders of the company is Warren Buffett, and Mr. Buffett signaled he might consider selling his shares in the company if things don't turn around soon. Kimberly Clark (KMB) is another major competitor of P&G with its personal care products. Recently, Kimberly Clark has been posting revenue growth and earnings shrinkage as a result of its margins getting smaller. The company's earnings in the last quarter was only $1.01 per share vs. estimates of $1.26 per share and last year's $1.20.
P&G's biggest strength is its innovation and diversification of its portfolio. The company operates all over the world and sells hundreds of different products. Investors know how important it is to diversify an equity portfolio, and the same applies to companies and their products too. Generally speaking, the more diversified a company's portfolio is, the safer that company is to invest in. P&G's strong dividend history is another thing that makes the company a buy.
Furthermore, P&G sees a lot of value in marketing, and the company always comes up with award-winning commercials. Strong marketing will continue to increase the company's brand image in the future.
As large and old as it is, the company is still growth-oriented and it is determined to do whatever it takes to keep growing and offering its shareholders a good value.
Disclosure: I am long (PG).