Procter & Gamble Co - Stocks

Instrument description

The consumer goods industry is one of the largest industries and contributes significantly not only to fulfill the needs of consumers but add to the global economy as well. Consumers are the center of every society and basic economic entity. Consumer goods consist of a diversified range of products that are made to satisfy a need or want and provide both convenience and luxury to consumers.

Consumer goods consist of consumer durables, household items, beverages and food, electronic gadgets, household appliances, cosmetics, and toiletries that serve particular practical purposes and which every individual can easily purchase and consume. Consumer goods play a vital part in the Gross Domestic Product (GDP) of many countries and also drives the retail industry.

Procter and Gamble is one of the oldest and largest companies in the fast-moving consumer goods (FMCG) market and popularly known as P&G. Procter and Gamble is an American multinational conglomerate that is known worldwide for its extensive products in nearly every segment of the consumer market. Procter and Gamble was formed in 1837 by two men William Procter and James Gamble

Some of the popular brands and products of Procter and Gamble that account for more than $1 billion net sales are Pampers, Gillette razors, Ariel washing powder, Fairy, Bounty paper towels, Dawn, Head & Shoulders, Gain, Crest toothpaste, Pantene, Oral-B, Tide, Vicks, Charmin, and Olay.

Procter and Gamble were listed 34th by Fortune 500 in 2017 as the biggest US Company based on total revenue. Procter and Gamble is headquartered in Cincinnati, Ohio, and has operations in more than 70 countries while the products are marketed and sold in 180 countries of the world. P&G has more than 99,000 employees. The primary offices of Procter and Gamble are located in Switzerland, Singapore, China, and Panama, while regional service centers are in the UK, the Philippines, and Costa Rica.

In August 2014, Procter and Gamble decided to divest some of its brands and focus on only 65 brands, which accounted for almost 95% of the company’s total revenue.

History of Procter and Gamble

Procter and Gamble was formed by William Procter and James Gamble in 1837, who met by chance. William Procter studied in England but was making candles in Cincinnati, which was the hub of commerce at that time. On the other hand, James Gamble came from Ireland and trained as a soap maker. The two may never have even met if it was not for their wives who were sisters and named Elizabeth and Olivia Norris. The father of Elizabeth and Olivia Norris convinced his sons’ in-laws to become business partners.

Procter and Gamble was officially formed on October 31, 1837, with total assets worth $7,192.24. The initial products of the company were Ivory soap in 1879, Crisco in 1911, Tide in 1946, which was the world’s first synthetic laundry detergent, Joy in 1949, which was the first synthetic liquid detergent.

Procter and Gamble tried to expand its portfolio by venturing into toothpaste, tea, baking mixes, and coffee segments. In 1959, Procter and Gamble posted $1 million in sales, and the number of employees had increased considerably. In 1862, during the Civil War, P&G supplied soap and candles to the Northern Armies. By 1879, Ivory soap is introduced.

In 1890, the soap segment was expanded with 30 different soap offerings, and P&G is also incorporated to increase the cash flow and business. In 1915, P&G opened its first production site in Canada for Ivory and Crisco products. In the 1920s, the light bulb mostly replaced candles, so P&G stopped its candle manufacturing. In 1930, P&G made its first overseas acquisition by purchasing Thomas Hedley & Co. of England.

From the late 1940s, P&G introduced a range of products such as Tide in 1946, Prell Shampoo in 1947, and Joy in 1949, and Crest toothpaste in 1955. P&G acquired Charmin in 1957 and started making toilet paper and tissue paper. In 1967, P&G launched its iconic brand ‘Pampers,’ which was the first major development in disposable diapers for babies. Also, in 1967, P&G launched another famous brand, ‘Head & Shoulders.’

In 1982, P&G introduced it’s over the counter health business, and P&G expanded its beauty and feminine segment in 1989 with many key acquisitions. In 2005, P&G made its biggest acquisition by purchasing Gillette Company. The acquisition of Gillette not only made P&G the largest consumer goods company but also brought ownership of notable brands such as Gillette razors, Oral-B, Duracell, and Braun.

Procter and Gamble is a giant in FMCGs, but it does not have any subsidiaries. Procter and Gamble purchase brands that become part of the company’s portfolio. The company brings constant changes and innovation within its brands to drive growth. However, P&G made the first acquisition in years by purchasing the health division of Merck Group called ‘KGaA’ for $4.2 billion, which was renamed to Procter and Gamble Health Limited in May 2019.

The stock value of Procter and Gamble has remained stable from 2013 to 2018 with no drastic fluctuations, and the share price has remained between $68 to $94 price ranges.

Current Business and Investment of Procter and Gamble

Procter and Gamble is the world’s leading business company is the consumer goods sector. The organizational structure of the company consists of different units, which include Global Business Units, Global Business Services, Selling and Market Operations, and Corporate Functions. Procter and Gamble market and delivers its wide assortment of products in six regions that are North America, Latin America, Europe, Asia-Pacific, Middle East, and Africa, and Greater China and India.

Procter and Gamble functions in such a diversified group of products that are categorized into 5 broad segments that are

• Baby, Feminine, & Family Care which contributes 45% of total sales
• Fabric & Home Care accounts for 25% of sales
• Beauty which consists of personal health and skincare accounts for 20% of sales
• Grooming contributes 10% of sales

At the start of the 21st century, the portfolio of Procter and Gamble increased significantly with

• Health and Wellness (toothpaste, mouthwashes, digestive aids, and toothbrushes)
• House and Home (detergents, paper towels, snack food, and cleaning products)
• Personal and beauty (cosmetics, cleaning products, fragrances, shaving, and deodorants)
• Baby and Family (diapers, tissue, and moisturizers)
• Pet care (pet food for cats and dogs)

The core business of Procter and Gamble is to provide premium quality packaged consumer products to consumers all across the world. P&Gs products are sold across a wide network such as retail stores, grocery stores, drug stores, distributors, specialty beauty stores, department stores, and e-commerce websites.

The brands of Procter and Gamble that are recognized and commonly used in every household include Ariel, Pantene, Gillette, Pampers, Safeguard, Olay, Dawn, Bounty, Old Spice, Always, Bounty, Febreze, Oral-B, Tide, Vicks, Mr. Clean, Head & Shoulders, Charmin, Fairy, Crest, and Cascade.

Procter and Gamble generate 45% of revenue from the US and Canada, while 23% from Europe, and the remaining 32% from Asia Pacific region along with Greater China, Middle East, and Africa, and Latin America. Procter and Gamble owns and runs more than 2 dozens production sites in the US while 85 other production sites are run in over 35 countries. Procter and Gamble generate almost 15% of total revenue from sales to Walmart.

Risk and Potential in Procter and Gamble Environment

Procter and Gamble reported revenue of $67.7 billion at the end of the 2019 fiscal years. The tremendous growth was due to increased sales in Beauty, Healthcare, and Home & Fabric Care, while the Grooming and Baby/Feminine/Family unit saw a decline. The operating income of Procter and Gamble in 2019 was $5.48 billion, net income was $3.89 billion, and total assets were $115.1 billion. The EPS (Earnings per Share) grew by 7%.

Procter and Gamble manages a portfolio of the world’s most popular consumer products, and to manage constant efficiency; the company relies on optimizing operations and implementing certain cost-cutting techniques. Procter and Gamble is looking to streamline its supply chain network and focus on multi-manufacturing sites, and its example is the one opened in West Virginia in 2019.

Procter and Gamble is also looking to get the maximum benefit from digital transformation and using data analytics to know the changing market and consumer trends and drive growth. SWOT analysis is a valuable management tool that allows big corporations such as Procter and Gamble to know its strengths and weaknesses and what measures can be taken to achieve success and sustainability. The SWOT analysis of Procter and Gamble is given by

• Strengths

Procter and Gamble is one of the oldest and trusted brands. The company has a legendary status when it comes to the FMCG sector. Procter and Gamble develops and delivers a wide portfolio of consumer goods and distributes them in more than 180 countries. P&G manages almost 65 brands, out of which 22 account for 95% of the company’s profits. The company has operations in nearly 80 countries.

Most P&G brands are used in every household of the world, such as Pampers, Gillette products, Tide, Ariel, Pantene, and Olay. P&G has won many prestigious awards over the years. The company efficiently manages its supply chain network that ensures that its wide products are available in all types of stores. P&G is known for its advertising and R&D. The company does not run any subsidiaries but innovates its product constantly to drive growth.

• Weaknesses

Procter and Gamble face tough competition from other domestic and international brands as consumer goods is a vast sector, and in some segments, the market is quite saturated. The fake products sold under the brand’s name is also a concern for P&G. The company has so many brands and departments that decision making is slow. P&G divested more than 200 brands, which meant it lost the capital that the company invested on developing those brands.

• Opportunities

Procter and Gamble can tap rural and remote areas in both developed and emerging economies. P&G can increase diversification in its products and market new variants. The increased purchasing power of consumers can also help P&G to sell its products and earn healthy profits. P&G is such a big name that it easily acquire a new competitor and expand its portfolio.

• Threats

Procter and Gamble face its biggest challenge in the face of other FMCG companies who also offer value for money. The intense competition in the consumer goods section means that P&G has to lose some of its market share. P&G is a global brand, which means the company’s financial health is significantly impacted by economic recessions, inflation, and currency rate fluctuations. The top competitors of P&G include Unilever, L’Oreal. Colgate-Palmolive, Marico, Newell Brands, Johnson & Johnson, and Henkel

Stock Analysis of Procter and Gamble

Procter and Gamble is listed and actively trades on the New York Stock Exchange (NYSE) with the ticker symbols ‘PG.’ The company is listed under the ‘Consumer Non-Durables’ Sector, and the industry is ‘Household/Personal Care.’ Procter and Gamble is also a member of other indices such as the Dow Jones Industrial Average (DJIA), S&P-100 Index, and S&P-500 Index.

The all-time high share price of Procter and Gamble was $139.06 on August 25, 2020, and the average price in the last 52 weeks is $121.57.

Procter and Gamble is known as a blue-chip stock as the company has maintained constant growth and stability over the years. The Coronavirus pandemic badly affected the production, distribution, and sales of P&G products; however, digital sales increased. The consumer staples segment of P&G has, however, profited the most as the consumers are stockpiling Charmin paper towels and toilet papers made by P&G.

Procter and Gamble announced its fourth-quarter financial report on July 30, 2020, that showed revenue of $17.698 billion and Earnings per Share (EPS) of $1.16. The EPS was as expected by the company, but revenue, was better as expected, at $17 billion. Procter and Gamble has such a diversified portfolio in consumer essentials that the company will easily ride through the Covid-19 situation, and profit in the fiscal year 2020 was $71 billion with a 5% growth. P&G generated $17.4 billion of operating cash flow, and dividend payments were $7.8 billion while share repurchase was $7.4 billion in the fiscal year 2020.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.