Procter & Gamble Co (PG) Announces Separation from Duracell
By Sarah Roden
Procter & Gamble Co (NYSE:PG) is a Cincinnati, Ohio based consumer goods company. While P&G used to have products ranging from pet food to snacks to personal hygiene products, the company is in the process of shedding brands to retain focus. CEO A.G. Lafley announced in early August that paring down P&G brands will result in “a much simpler, much less complex company of leading brands that’s easier to manage and operate.” The most recent brand to be dissociated with P&G is Duracell, as announced on October 24th, 2014.
Procter & Gamble Co (NYSE:PG) acquired Duracell in 2005 as part of Gillette. Now, P&G intends to create a stand-alone Duracell company in order to “maximize value to P&G’s shareholders and minimize earnings per share dilution,” as released in a P&G statement on October 24th.
News of Duracell’s departure seemed to overshadow the release of P&G’s first quarter FY15 core earnings. Highlights of this report included earnings per share of $0.69 on a diluted basis; down from $1.04 from the same report last year. P&G reported an operating cash flow of $3.6 billion and a free cash flow of $2.8 billion for the quarter. CEO A.G. Lafley commented, “P&G’s first quarter results were in-line with our expectations, despite a very difficult operating environment…We continue to accelerate and increase productivity savings, sharpen our strategies and strengthen our portfolio by focusing on our biggest opportunities.”
Analysts seem to have mixed feelings on Procter & Gamble Co (NYSE:PG) shedding Duracell. Dan Burrows, an InvestorPlace blogger, seems unimpressed with the stock and fails to find a compelling reason to Buy, noting: “PG used to like to brag about how many billion-dollar brands it owns, but it’s become clear to the market and management that size doesn’t matter. It’s tough to drive organic growth (that is, growth coming somewhere other than acquisitions) in the consumer products business,” he noted on October 24th. Burrows continues to explain that P&G used to have the advantage of consumer loyalty, but many people have abandoned the costly brands through recent recessions.
Burrows spells it out, noting, “As the saying goes, you can’t cut your way to growth, and no one expects all that much of it from Procter & Gamble. With a long-term growth forecast of less than 9%, it’s predicted to be more sluggish that even the S&P 500. No, there’s nothing that makes Procter & Gamble a screaming sell. Better times are probably ahead. But with a pricey valuation and extra-tough business environment, there’s no compelling case to buy PG stock either.” Burrows has a 64% success rate recommending stocks with a +6.0% average return per recommendation.
On the other hand, Jon Andersen of William Blair recommended Procter and Gamble on October 24th, maintaining an Outperform rating. Andersen noted, “We continue to like the story in light of portfolio and productivity initiatives, which should result in a faster-growing, more-profitable company that is more agile and straightforward to steward.” Andersen has a 67% success rate recommending stocks with an average return of +19.9% per recommendation.
On average, the top analyst consensus for Procter & Gamble is Hold.
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Sarah Roden writes about stock market news. Sarah can be reached at [email protected]