The London Olympics with a budget of almost $15 billion kicked off with much fanfare last weekend. For worldwide partners of the Olympics like The Procter & Gamble Company (NYSE:PG) and partners like apparel maker Adidas AG (PINK:ADDYY) however, the games are a play at increasing the bottom line. Adidas expects the Olympics to increase sales by about $157 millionand push it into first place in the United Kingdom within three years. P&G already reaped $100 million in incremental sales from the Vancouver winter Olympics and is predicting an overall additional sales of $500 million this year as a result of its Olympic affiliation.
The world’s largest consumer goods company with a market cap of $178,353 million, The Procter & Gamble Company (NYSE:PG) is also the world’s largest advertiser chalking up an advertising spend of $3 billion last year alone. This week we take a look at the behemoth behind Pampers®, Pantene®, Covergirl®, Tide®, Cascade®, Iams®, Pepto-Bismol®, Olay®, and Gillette® to name just a handful of its brands. PG’s Thank you, Mom campaign for the Olympics, its biggest in 175 years, has over 700k likes on its facebook page. The company has sponsored over 150 athletes for the Olympics including Michael Phelps.
Our Fundamental Analysis is peer-based. We compare PG to its global peers (the screenshots below shows the peers included in our analysis) and give it a low score of 31/100 for Fundamental Analysis.
This score is an aggregate of our ratings for several attributes that include Valuation Drivers, Operations Diagnostic, Earnings Leverage, Capital Investment Strategy, et cetera. The company lags its peers and is challenged with regards to its Earnings and its Capital Investment Strategy. The analysis below covers all nine attributes that result in PG’s low Fundamental Analysis score. Register on our site to access our analysis on PG’s peers and to customize the peer set.
- Procter & Gamble Co. trades at a lower Price/Book multiple (2.8) than its peer median (4.2).
- The market expects PG-US’s earnings to grow at about the same rate as its chosen peers and also does not seem to expect much improvement in its below peer median returns.
- PG-US employs relatively high amounts of assets while generating relatively median profit margins.
- Compared with its chosen peers, the company’s annual revenues and earnings change at a slower rate, implying a lack of strategic focus and/or lack of execution success.
- Over the last five years, PG-US’s return on assets has declined from about median to less than the median among its peers suggesting that the company’s historical competitiveness in operations is slipping away.
- The company’s margins are around the peer medians and do not suggest any benefit from a pricing or an operating cost advantage versus peers.
- While PG-US’s revenues growth has been below the peer median in the last few years, the market still gives the stock a PE ratio that is around peer median and seems to see the company as a long-term strategic bet.
- The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
- PG-US has the financial and operating capacity to borrow quickly.
Share Price Performance
Relative underperformance over the last year is in contrast with the more recent outperformance.
Drivers of Valuation: Operations or Expectations?
Valuation (P/B) = Operating Advantage (ROE) * Growth Expectations (P/E)
The market does not expect much improvement in PG-US’s currently below median returns.
PG-US has maintained its relatively low ROE profile from the recent year-end.
PG-US employs relatively high amounts of assets while generating relatively median profit margins.
PG-US has maintained its relatively low asset turnover profile from the recent year-end.
Lagging revenues and earnings imply a lack of strategic focus and/or ability to execute.
Sustainability of Returns
Relative to peers, recent returns have declined versus last five years.
Drivers of Margin
Margins do not suggest any relative benefit from a pricing or an operating cost advantage.
PG-US has maintained its median gross margin and pre-tax margin profile from the recent year-end.
The market seems to see the company as a long-term strategic bet.
Capital Investment Strategy
PG-US seems to be in maintenance mode.
Leverage & Liquidity
PG-US has the financial and operating capacity to borrow quickly.
PG-US has maintained its Quick & Able profile from the recent year-end.
Key Valuation Items
|Company||Market Cap(mn)||Price / Book||Price / Earnings||Dividend Yield (%)|
|Johnson & Johnson||190,928.0||3.1||19.1||3.3|
|Reckitt Benckiser Group PLC||40,292.8||4.5||14.5||3.6|
|Estee Lauder Cos. Cl A||21,263.7||7.5||25.6||0.7|
|Hindustan Unilever Ltd.||18,153.0||27.3||36.0||1.6|
|Henkel AG & Co. KGaA ADS||15,361.2||1.3||13.9||1.2|
|Church & Dwight Co.||8,011.8||3.9||26.1||1.3|
|Procter & Gamble Co.||178,353.0||2.8||20.0||3.2|
|Best In Class||190,928.0||27.3||36.0||3.6|
Revenues & Margins
|Company||Revenues (mn)||Gross Margin (%)||Pre-Tax Margin (%)||Net Margin (%)|
|Johnson & Johnson||65,016.0||73.5||19.8||15.5|
|Reckitt Benckiser Group PLC||15,205.1||59.3||25.1||18.4|
|Estee Lauder Cos. Cl A||9,523.0||82.4||13.1||8.9|
|Hindustan Unilever Ltd.||4,888.8||38.3||15.5||12.0|
|Henkel AG & Co. KGaA ADS||21,856.4||48.5||11.5||8.5|
|Church & Dwight Co.||2,797.6||46.7||17.8||11.5|
|Procter & Gamble Co.||85,106.0||55.8||15.5||11.3|
|Best In Class||85,106.0||82.4||25.1||18.4|
Key Assets (% of Revenues)
|Company||Capital (%)||Goodwill & Intangibles(%)||Working Capital (%)||Cash & Equivalents (%)|
|Johnson & Johnson||124.3||53.1||46.9||52.1|
|Reckitt Benckiser Group PLC||84.0||104.8||(29.9)||7.3|
|Estee Lauder Cos. Cl A||42.5||11.5||18.8||12.5|
|Hindustan Unilever Ltd.||14.8||0.2||1.9||17.1|
|Henkel AG & Co. KGaA ADS||78.3||52.1||14.5||18.0|
|Church & Dwight Co.||81.5||63.2||11.7||8.3|
|Procter & Gamble Co.||115.6||101.4||(4.8)||4.7|
Key Working Capital Items
|Company||Inventory DSO||Receivable DSO||Payable DSO||Cash Conversion Cycle*|
|Johnson & Johnson||36.7||60.5||30.3||158.3|
|Reckitt Benckiser Group PLC||26.3||50.8||36.4||40.7|
|Estee Lauder Cos. Cl A||34.4||51.5||15.2||190.4|
|Hindustan Unilever Ltd.||43.4||22.0||85.2||(19.8)|
|Henkel AG & Co. KGaA ADS||35.1||52.7||54.5||28.3|
|Church & Dwight Co.||27.0||34.9||39.5||8.7|
|Procter & Gamble Co.||31.5||28.1||28.8||30.2|
|Best In Class||26.3||22.0||85.2||(19.8)|
|* Inventory DSO Receivable DSO – Payable DSO|
Cash Management Indicators
|Company||Current Assets DSO||Current Liabilities DSO||Cash Float DSO*||Excess Cash DSO**|
|Johnson & Johnson||298.2||126.9||13.6||178.3|
|Reckitt Benckiser Group PLC||104.5||213.7||(134.6)||18.0|
|Estee Lauder Cos. Cl A||145.8||77.3||112.1||34.7|
|Hindustan Unilever Ltd.||114.0||107.0||(40.2)||39.9|
|Henkel AG & Co. KGaA ADS||154.4||101.6||(9.7)||53.4|
|Church & Dwight Co.||92.8||49.9||64.0||24.3|
|Procter & Gamble Co.||96.3||113.8||(165.8)||10.7|
|Best In Class||89.3||213.7||(205.6)||6.9|
|* CurrAssetsDSO – CurrLiabDSO – CashDSO|
|** Excess Cash = Cash & Eqvts – 2%*Revenue|
Key Liquidity Items
|Company||Debt/Enterprise Value (%)||Current Ratio||Interest Coverage (x)||Cash Flow To Total Debt (%)|
|Johnson & Johnson||8.8||2.7||27.7||70.3|
|Reckitt Benckiser Group PLC||7.5||0.5||63.9||76.4|
|Estee Lauder Cos. Cl A||4.3||1.9||21.5||96.7|
|Hindustan Unilever Ltd.||0.0||1.2||2,134.6||158,215.0|
|Henkel AG & Co. KGaA ADS||17.1||1.6||9.1||44.6|
|Church & Dwight Co.||3.1||1.9||53.4||183.7|
|Procter & Gamble Co.||11.7||0.9||16.1||43.9|
|Best In Class||0.0||2.7||2,134.6||158,215.0|
Key Cash Flow Items (% of Revenues)
|Company||Operating Cash Flow (%)||Capex (%)||Interest Expense (%)||Dividends (%)|
|Johnson & Johnson||22.7||4.6||0.9||9.5|
|Reckitt Benckiser Group PLC||18.3||1.7||0.4||9.2|
|Estee Lauder Cos. Cl A||12.3||4.2||0.7||1.6|
|Hindustan Unilever Ltd.||9.4||1.2||0.0||3.2|
|Henkel AG & Co. KGaA ADS||10.2||2.6||1.3||2.0|
|Church & Dwight Co.||16.9||3.0||0.3||3.5|
|Procter & Gamble Co.||15.5||4.6||1.2||6.8|