Interactive Investor

ii view: why Procter & Gamble is a proven winner

20th October 2020 15:57

Keith Bowman from interactive investor

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This business behind a wide array of consumer brands has raised its profit forecasts. Too late to buy?

First-quarter results to 30 September

  • Net sales up 9% to $19.3 billion
  • Earnings per share up 20% to $1.63
  • Previously announced quarterly dividend of £0.7907 per share 

Guidance: 

  • Expects full-year sales growth of between 3% to 4%, up from 1% to 3%

Chief executive David Taylor said:

“We delivered another strong quarter of organic sales growth, core earnings per share and cash returned to shareowners, enabling us to increase our outlook for fiscal year results. Our near-term priorities continue to be employee health and safety, maximizing availability of P&G products for consumers around the world, and helping society meet the challenges of the Covid crisis. 

“We remain firmly focused on executing our strategies of superiority, productivity, constructive disruption and improving P&G’s organisation and culture to deliver balanced top-line and bottom-line growth along with strong cash generation.”

ii round-up:

Consumer goods giant Procter & Gamble (NYSE:PG) today raised its full-year sales and profit estimates given strong demand for its array of branded household products during the global pandemic. 

Organic sales growth of 9% during the first quarter of its financial year helped push full-year sales expectations up to a range of 3% to 4% from a previous 1% to 3%. Earnings are now expected to expand by as much as 8% from a previous low end forecast of 3%.

Procter & Gamble shares rose in early US trading and are up by nearly 15% year-to-date. Shares of rival Unilever (LSE:ULVR), whose brands include Cif and Sunlight, are up just over 10% in 2020. 

Fabric and home care products generate a third of P&G sales, and healthcare items another 13%. Group brands include Ariel, Fairy, Flash and Vicks. Bounty paper towels sit within its baby, feminine and family care range. 

Fabric and home care and health care product sales led the way during the quarter, rising by 14% and 12% respectively. Other categories such as grooming and beauty, whose brands include Gillette and Head and Shoulders, rose by 6% and 7% respectively. Baby, feminine and family care sales and including such brands as Tampax and Pampers rose by 4%. 

In July, P&G declared a quarterly dividend payment of $0.7907 per share, unchanged on the prior quarter although up on the previous four quarters of $0.7459 per share. 

ii view:

Procter & Gamble is currently the sixth-largest company in the US Dow Jones 30 index with a stock value of just over $350 billion. It operates across the five divisions of fabric and home care, baby, feminine and family care, beauty, health care and grooming. Other famous brands include Tide, Febreze, Always, Crest, Oral-B, Pantene, Braun and Venus. 

Its biggest sales and earnings generator is fabric and home care at around a third of the group total, followed by baby, feminine and family care at just over a quarter. North America accounts for just under half of its sales, with Europe just under a quarter and Asia and China at around a tenth each. 

For investors, quality and dependability do not come cheap. The estimated forward price/earnings ratio of around 26 is above both the three and 10-year averages, suggesting any slips ups in performance would be punished. 

But the defensive nature of its consumer products range is clear to see, with a 30% jump in home care sales during the quarter reflecting other pandemic demand seen from the likes of Reckitt Benckiser (LSE:RB.) and Unilever. And, despite a relatively unexciting income yield of around 2%, a long history of dividend payments and increases is also not to be overlooked. In all, P&G remains deserving of a place in diversified long-term focused portfolios.   

Positives: 

  • Product and geographical diversity
  • Progressive dividend policy

Negatives:

  • Above average valuation
  • Environmental product concerns

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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