Procter & Gamble CompanyPG

Morningstar Rating

Stock Research and Analysis

by Lauren DeSanto

Procter & Gamble's size confers tremendous benefits in terms of distribution, brand reach, and scale with suppliers, but the goliath was caught flat-footed in its response to the dramatic downturn in consumer spending. With a new CEO at the helm, however, P&G has implemented plans to reinvigorate top-line and earnings growth and we remain confident that the household products stalwart will be able to reposition itself for a more challenging economy. Read more

Bulls Say

Savings from productivity and simplification initiatives, lower media rates, and positive benefits from commodities and foreign exchange in 2010 should help P&G free up $1 billion in incremental investment to help reposition the firm.

P&G's has 23 brands which generate more than $1 billion in sales annually and another 20 brands that generate more than $500 million in sales.

The firm is planning the biggest increase in its manufacturing capacity in its history in order to expand into categories and countries where it doesn't have a brand presence. By sourcing more in low-income markets, the company is able to reduce the cost of serving these markets while also being closer to regions with the greatest long-term growth potential.

Bears Say

As more consumers shift their spending to dollar stores and hard discounters, P&G's brand equities are marginalized.

P&G faces formidable rivals such as L'Oreal in its highest-margin, most attractive beauty-care product categories as well as Colgate in the oral-care category.

P&G's strategy of trading consumers up to more expensive, higher-margin products needs to be readjusted in the face of declines in consumer spending. The firm will be challenged to maintain market share and avoid price wars with competitors.

Despite divesting businesses such as Folgers which no longer fit with its portfolio, P&G still has brands, such as Duracell, that are languishing. Unfortunately the battery business is very commoditylike, and we don't see a lot interested buyers on the horizon.

A three year $24 billion-$30 billion share buyback plan set out in 2007 may fall short of plan depending on sales and earnings growth in fiscal 2010. Read more

Strategy

P&G acquired Gillette in October 2005 as part of a strategy to increase its presence in higher-margin product categories that are more asset-efficient and offer more global leadership potential. The company has focused marketing and product development on its beauty-care and health-care segments as well as on developing markets. Read more

Management

The last year has seen significant leadership changes at P&G with the retirement of a number of top executives and chairman A.G. Lafley handing over the CEO reigns to COO Robert McDonald in early July. Lafley guided the firm through a brand revival earlier this decade and the company's transformation through its acquisition and integration of Gillette. Read more

Profile

Since its founding in 1837, Procter & Gamble has become the world's largest consumer product manufacturer, with a lineup of famous brands. The brands are sold through three global business units and include Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics, and Iams pet food. Read more

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