P&G is witnessing a very complex year, but its major portfolio shake-up might lead to better days ahead.
This year has been provoking for the shareholders of Procter & Gamble Co. The company’s fundamentals are failing this year, due to many factors including falling volume of product shipments and the increasing U.S dollar. Because of this, the company is experiencing a key transformation of product portfolio, in order to shelter majority of the nonperforming business lines that have caused it to decline, but for a big company of this size, this transformation will take some time.
During past year, the company has declared multiple big deals to sell various P&G brands that were not growing in 2014; the company sold its brand, Duracell battery to Warren Buffet’s Berkshire Hathaway for around $4.7 billion. During the start of this year, P&G sold around 43 brands to Coty for nearly $12.5 billion. These brands include Hugo Boss, Gucci, Dolce & Gabbana, Max Factor and Cover Girl another brand was Wella hair care business.
The dramatic portfolio shake up is significant in light of company’s struggles so far this year. Its overall revenue fell 5% this year, to around $76.3 billion and non-adjusted EPS from operating activities declined 21% YoY. To be reasonable, the strengthening U.S dollar was the main problem. In fact, Procter & Gamble Stock Analysis stated that foreign exchange alone cut 6% from the company revenue growth previous fiscal year.
Still, P&G problems are not completely because of currency exchange. Last year, product sales volume of the company dropped 4% in the hair, beauty, and personal care division, 3% and 1% in grooming, and feminine, baby and family care. These volumes drop is irrecoverable by currency volatilities. Instead, falling volumes points a serious structural issue and much more regarding decrease in casual demand of the products.
Therefore, P&G restructuring its portfolio is the only strategy. By selling declining businesses and low growth, it can simply use the cash to invest in higher growth activities or businesses, such as diapers. The company’s brand is still very popular. For example, P&G said on its recent conference call that its latest new-line of Pampers Pants is entering the market in United States and China, right now. Management expects the pants division will worth nearly $2 to $3 billion per year over the coming few years.
Furthermore, because of these huge deals, the company showed its intentions to return approximately $70 billion to shareholders via dividends and Procter & Gamble Stock repurchase. The share buyback shows a better opportunity to increase EPS, and its dividend is nearby and dear to its shareholders.