Will Proctor & Gamble (PG) Stock Get Lost In Transition?

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Proctor & Gamble Co (NYSE:PG) has been in the U.S. consumer products market for 180 years. And for the past 60 years — going back to when Eisenhower was president — PG has raised its dividend every year without fail, to the delight of PG stock holders.

Procter & Gamble PG stock

So why is Nelson Peltz of Trian Partners hellbent on shaking things up at this symbol of solidity and endurance for American consumers?

Well, first off, Peltz is kind of late to this game. PG management already has been working on transitioning the company to a more-focused model for the past couple of years. And it has been working.

PG has cut about $2 billion out of its operating expenses every year since 2012, which has helped keep it profitable, even as sales have slowed. And, in the past few years, it has pledged to cut around 100 brands from its portfolio down to 65. It also sliced a large part of its outside advertising budget.

But Peltz is still interested in a more-dynamic corporate culture. And that is understandable given his perspective. It’s why he is engaged in the biggest proxy fight in Wall Street history right now over gaining a board seat at PG.

Amicable Discussion

In typical Procter & Gamble fashion, this hasn’t become a battle. Company execs and board members are amicably discussing Peltz’s concerns and interests in ‘modernizing’ PG.

The reality is — with a $227 billion market cap, operations in 80 countries and product reach into 180 countries — it’s not that small a ship to turn.

There’s no doubt that Peltz may have some constructive ideas, but after 180 years, through the Civil War and every other war and depression that America has endured, PG’s institutional knowledge should be respected.

Granted, there are new challenges in market that PG hasn’t experienced. Millennials aren’t brand conscious. Online retail is cutting into margins. A strong dollar is hurting international sales that make up 54% of revenue. These issues need to be addressed.

 

But reacting to the challenges is different from building a proactive strategy to find its place through these challenges. And the latter is what PG has done for nearly two centuries.

PG Stock Is Foundation Holding

Its leadership is very good and profits are rising, even as revenue has slowed. And remember, revenue for its competitors — like Kimberly Clark Corp (NYSE:KMB) and Colgate Palmolive Company (NYSE:CL) — was also down for FY2016. This is a sector issue, not a corporate one.

Even against these two competitors, PG has been on top of this transition before it hit and continues to work out ways to keep its brands profitable. And with a more diversified stable than CL and KMB, it has more opportunities to grow its way out as the global economy expands.

This is why, over the past 12 months, PG stock has outperformed its peers, even though CL stock and KMB stock have had a stronger year-to-date performance.

PG is a foundation stock for a portfolio, not a big growth stock. As long as sticks to consumer staples and can continue to adjust to the modern challenges of the sector it will continue to do well.

There’s one thing to thank Peltz for right now – keeping PG stock cheap for smart buyers.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/will-proctor-gamble-pg-stock-get-lost-in-transition/.

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