Finanzas: Procter & Gamble: Long-Term Growth Targets

 

P&G may have picked a precarious time to get its act together given the rate-driven rotation out of the consumer staples group broadly.

I expect total sales to grow 1.0% in FY’17 to $65.95 billion, reflecting organic sales growth of 2.0%, partially offset by a negative foreign currency exchange.

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My 12-month target price of $103 reflects a P/E of 26X, near the high end of Procter & Gamble’s (NYSE:PG) three-year trading range of 21.1X to 28.4X, applied to FY’17 EPS estimate of $3.97. Following divestitures, I see valuation benefiting from an improved long-term growth profile as the company’s management team is now more focused on growing sales for core wider-margin products.

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Procter & Gamble’s business is focused on providing branded products of what it considers superior quality and value to improve the lives of the world’s consumers. PG’s products are sold in more than 180 countries. The U.S. and Canada accounted for 44% of total sales, Europe 23%, Asia Pacific 9%, China 8%, Latin America 8%, and IMEA (India, Middle East, and Africa) 8%. PG’s customers include mass merchandisers, grocery stores, membership club stores, drug stores and high-frequency stores. Sales to Wal-Mart Stores (NYSE:WMT) and its affiliates represented about 15% of total FY’16 revenue. PG’s top 10 customers accounted for about 35% of total sales.

The company has five segments: Beauty (28% of FY’16 net sales and 20% of net earnings, both excluding results held in the Corporate segment); Grooming (11%, 15%); Health Care (11%, 12%); Fabric and Home Care (32%, 27%); and Baby, Feminine and Family Care (29%, 26%).

In February 2012, PG laid out plans to reduce costs by up to $10 billion over the next five years, with approximately $8 billion from cost reductions and the remainder from cost control and leverage of fixed expenses. A significant amount of savings is expected to come from reduced overhead expense, including the elimination of 5,700 non-manufacturing positions (about a 10% reduction). The company expects to incur in excess of $4.5 billion in before-tax restructuring costs between FY’12 and FY’16. While I believe this cost savings plan will provide benefits to operating margin, I expect much of this will be mitigated by factors such as reinvestment, rising commodity costs, competitive pricing, and mix changes. The actual impact on earnings is uncertain.


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