In 2014, Procter & Gamble Co (NYSE:PG) announced big changes — it was planning on getting rid of half of its consumer product brands.
And while that ‘rationalization’ has worked out very well in the past couple years, PG stock remains committed to whittling down its portfolio even further. It has cut 60 brands from its portfolio and is targeting another 44 brands by the end of the year. That will leave PG with about 65 brands.
For most companies, taking these aggressive measures would only come after consistently bad quarters and a tanking stock. But at PG, this is the way this company has been able to grow and build for nearly 180 years.
That is a very long time to be a profitable business. President Martin Van Buren had just taken over for Andrew Jackson. Chicago and Houston signed their city charters. The Second Seminole War — or Florida War — was underway.
And PG was already making money.
It continues that long-standing tradition today. And its longevity has been dependent upon broad vision and a focused strategy.
But its long view doesn’t always benefit the stock price. For the past year, the stock has moved up 9%, which is solid, but not spectacular.
The PG Stock Slowdown
In late October, PG stock released its Q1 fiscal year 2017 earnings. They were hopeful. Sales were up an average of 3% and earnings per share were up 5%. That means Procter & Gamble’s brand rationalization is doing what management had hoped — allowing its dominant brands more room to grow while cutting back on the less profitable secondary and tertiary brands.
As this thinning of the herd continues, it will position PG for new opportunities as well as a stronger focus on its best brands.
Also remember, Procter & Gamble is one of the longest-running dividend aristocrats around — it has raised dividends every year for the past 50-plus years. That’s quite a record. And it shows the company’s commitment to shareholders. Right now, its dividend yield is running around a respectable 3.2%.
In recent years PG has been a pretty slow grower, but much of that can laid at the feet of CEO Bob McDonald, who arrived in 2009. He began to grow the brands Procter & Gamble had in hopes that more is better. By 2013, activist shareholders were not impressed with the direction McDonald was PG and had him replaced with the CEO who ran the company from 2000 to 2009, when growth was much stronger, AG Lafley.
But what Lafley started, was to be handed over to yet another CEO in 2015, David Taylor. Taylor is a longtime employee of PG and has continued to consolidate brands to the good of the stock.
While the markets are going a bit crazy trying to gain advantage in this new world of a Donald Trump presidency, the fact is that a Trump administration is a blank slate for now. Add to that the fact that it’s very likely the Federal Reserve will raise rates in December and you have real instability that will increase volatility into 2017.
PG is a bulwark against that volatility. It will win regardless. And when institutional money gets scared, it heads to Procter & Gamble. Either way, you win.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
