Procter and Gamble
Case Study about Procter and Gamble
Procter and Gamble (P&G) is a global American company specialized in consumer household and personal products. It has its headquarters at Cincinnati, Ohio, in the United States. Its founders are William Procter and James Gamble hence the name Procter and Gamble. The company was started in 1837 but fully incorporated in 1905. After its establishment, the company has grown to the extent that is controls a significant share in the global market share. Its brands are renowned and trade internationally currently ranked as the largest producer of consumer goods. The board of governors of eleven members runs the company, with A.G. Lefley being the board chairperson, president and CEO (Procter & Gamble, 2010).
P&G Market Strategy and Segments
Procter and Gamble Company (P&G) products and services have penetrated more than 180 countries and territories globally. Every multinational company has a strategy, which it approaches its market to promote its brands and maximize profit. The market penetration strategy is through grocery stores, drug stores, mass merchandisers, membership club stores, e-commerce, departmental stores, neighborhood stores, and high-frequency stores (Global Top 50 brands, 2013). Among its key stores to which it supplies its products include Wal-Mart stores and its affiliates, which also has global market recognition. These avenues serve all its customers at all levels in all its developing markets. This approach of the market has ensured that P&G’s business remains relevant and at the top of its competitors. The approach has enabled it to accommodate all consumers from the low to the high classes because of the ease of accessibility of these products and services.
In order to enhance its market penetration, P&G structured the business into five segments running globally as of 2014. These segments include grooming, beauty, Healthcare, Fabric and home care, and baby and family care. The manufactured products are supplied to the global market through these segments. Under the beauty care segment, an assortment of products is offered from cosmetics to deodorants to skin care. Amongst the several brands available is the Olay brand, a worldwide facial skin care brand. Some of the brands available in the fragrances market include Gucci, Dolce & Gabbana, and Hugo Boss brands. In the grooming segment, its main products are shave care and appliances, which include pre- and post-shave products, blades, and razors. Some examples of products under this segment include Gillette, Fusion, Mach3, and Prestobarba (Global Top 50 brands, 2013).
In the healthcare sector, the products offered range from oral care to personal health care. Examples of products in oral care include toothpaste and toothbrush, among others, while products under personal healthcare include respiratory, gastrointestinal, and rapid diagnostics among others. Key sample brands in this segment are Oral-B, Always, Vicks, and Crest. In the fabric care segment, the products offered include fabric enhancers, and laundry additives and detergents. Some of the home care products include Dish Care, Air Care, Dawn, Ariel, Downy, Duracell, Tide, Febrze, and Gain. Finally, in the baby and family care division, some of the principal available products include baby diapers, wipes and pants, Feminine Care, paper towels, Incontinence, tissues and toilet paper. Some key brand examples are Bounty, Pampers, and Charmin.
The diversification of P&G’s products has enabled it to penetrate a large global market and remain relevant. The approach enables it to manage losses: in case of a collapse one product, it still capitalizes on the other different products.
This section represents an evaluation of the market, which P&G’s product brands have penetrated through the five different segments. It considers some statistics from the market using various parameters including stock price, revenue, and earnings.
Procter and Gamble is enlisted on New York Stock Exchange as an active trader in the stock market. Its stock price per share was at $84.33 million at the close of business on 25th of September 2014, according to the information provided by The Wall Street Journal. P&G’s performance, as a multinational company, is quite commendable although it is a drop of -0.91 from the previous trade price, which is -1.07%. However, in comparison with its close competitors, it is performing dismally in the stock exchange trading. Some of its key competitors include Johnson & Johnson with a stock price listing of $107.10 and Unilever with several entities at â‚¬30.89, â‚¬30.80, â‚¬78.00 and 2,552.00p. Others include L’Oreal SA with a stock price of â‚¬123.90 and Kimberly Clark Corp with a stock price of $107.20. All these companies perform much better compared to P&G. Colgate-Palmolive Company, which has a stock price of $65.48, is the only company that P&G has beaten amongst its competitors (Appendix 4).
The above statistics show that, in the stock exchange market, P&G is performing poorly. Perhaps, many investors find this P&G share price unpredictable, which also reflects the performance of the company in comparison with its close competitors outside the stock market. The dwindling performance may be a red light to P&G that it may be likely losing on its market share as many of its customers. The once loyal consumers of its products could be shifting to its competitors’ products. One of the characteristics of dropping companies rests on the competitors’ stock market performance.
P&G has a Revenue Recognition Accounting Policy, which it relies upon to track and calculate its revenue earnings. The policy also assists investors to assess P&G’s performance and prospects.
P&G’s Revenue Recognition Accounting Policy
This policy states that the realization of income is a key indicator of sales recognition since the transactions in revenue represent inventory sales. The recorded revenue is given as the net of sales and other taxes collected for government authorities by P&G. The cost of shipping and handling are considered during income projections. Those costs are part of the price list that is given to the customer. P&G’s policy is the recognition of income “when title to the product, ownership and risk of loss transfer to the customer, on the shipment or receipt date by the customer” (Procter & Gamble, 2010). The policy has provision for allowances of discounts in payment and return of products, which has been recorded as sales reduction during the revenue recognition period.
The system also allows for the offer of merchandising funds; trade promotions, which compose of allowance due to customer pricing; and customer coupons, to P&G’s consumers and customers through various programs. This policy aims at encouraging consumption of P&G’s products and hence increasing sales. The recording of sales is done as net of trade promotion spending during sale. Most of these arrangements in the policy are of one-year terms. The expected payout accruals under the programs are enlisted as accrued marketing and promotion in the Consolidated Balance Sheets under the line of Accrued and other liabilities.
Explanation of Revenue statistics
The income statement of revenues of P&G from 2009 to 2014 fiscal years is shown in the tables in appendix 1. The revenue from the beauty segment increased smoothly from $18,000 million in June 30, 2009 to $20,000 million in June 30, 2012. However, it decreased to $19,507 million in June 30, 2014. According to these statistics, beauty products had the best performance in 2012 than the other years while 2009 performed poorest. For the income from the grooming products, it increased from $7,543 million to $8,339 million before decreasing to $8,009 million. The grooming products also performed best in 2012 in comparison to the other fiscal years like the beauty products. However, comparing the two segments, in the year of the best performance, there was a whopping difference of $11,979 million. However, this segment performed poorest in 2009 in revenue collection (Appendix 1).
The revenue income from the healthcare segment increased smoothly from 2010 being at $11,493 million, which was a drop from the previous year at $13,623 million to 2013 being at $12,830 million. Thereafter, it dropped to $7,798 million in the following year. The healthcare performance was best in 2013 compared to the other years while 2014 performed the poorest. The fabric care and family care segment recording increasing revenue from 2009 being at 23,186 to 2013 being at $27,448 million before it dropped to $26,060 million in 2014. The year 2013 had the best revenue collection while 2009 had the poorest performance. Lastly, the Baby and Family Care segment listed as Baby, Feminine and Family Care in the table, had a uniformly increase in revenue from $14,103 million in 2009 to $16,790 million in 2013. Later, it shot drastically to $20,950 million. The margin between the 2013 and 2014 income was $4,160 million indicating that the sector performed best in 2014. An additional segment of Snacks and PetCare had a generally uniform revenue increase from 2009, at $3,114 million to 2011, at $3,156. No revenue was collected in the subsequent years (Appendix 1). The low performance from this segment, perhaps, caused its removal from P&G’s market as an independent segment. Perhaps, the products in the segment were assimilated in different segments like healthcare, and Baby and family care segments, whose products closely related to these products.
Ideally, P&G’s net sales increased from $79,029 million in 2009 to $84,167 million in 2013 after which they dropped to $83,067 million in 2014 (Appendix 1). Contrary to the conventional expectation due to the observed improving trend over the years, P&G performed poorly in 2014 in revenue collection. This trend was also observed in P&G’s performance in the stock market whereby the latest stock price of $84.33 million was a drop from the previous price. Perhaps, the poor performance is due to hard financial times or tough competition from other companies of similar products. It could also be that some of P&G’s loyal consumers are shifting loyalty.
The table in appendix 3 shows the company earnings overview. The net sales of P&G’s products and services are averaged at $84.2 billion, and its revenue worldwide averages at $93 billion. The total sales in the U.S. market alone stand at $30.3 billion (Appendix 3). These statistics are quite impressive looking at what P&G can make from its lucrative products. It implies that P&G has enjoyed a big market share, which makes its average turnover to be very high.
The two tables in appendix 2 show the revenue, earnings per share, and dividends received turnover of P&G from 2009 to 2014. The variation of revenue across the five years has already been discussed under revenue. In this section, the variation of earnings per share (EPS) will be discussed. The EPS of P&G was quite unpredictable over the five years. It was on a descending trend from 2009 where it was at 4.26 to 2012 where it was 3.66. Thereafter, it increased to 4.01 by 2014. The EPS was poorest in 2012 and highest in 2009. The dividends were unchanging and were on an increasing trend from 1.68 in 2009 to 2.49 in 2014.
The earnings per share as the company’s distributable profit portion assigned to each outstanding equity share are the best indicator of profitability of any company. It is amongst the standard measures used to gauge the profitability of a company. When the EPS value of the company is compared to other similar companies, the comparative earning power of the companies is realized. Therefore, the dwindling rate of the P&G’s EPS from 2009 to 2012 reflected the dwindling rate of P&G’s market performance over the years. The slight increase from 2012 to 2014 reflected P&G’s profitability improvement.
Mean in million $
Contrary to the increasing trend in net revenue observed from 20o9 to 2013 before dropping in 2014, the central tendency of the revenue hand a general smooth increase. It rose from 19173.50 million dollars, in 2009, to 20765.50 million dollars, in 2014. On the other hand, the standard deviation decreased from 2009 to 2011, then rose in 2012 but decreased again in 2013 and 2014. It was not uniform in its general downward trend. Looking at the skewness of the revenue data, it gives a clear indication that the revenue was asymmetrical. There was no observable symmetry in the revenue generated by P&G over the years from 2009 to 2014. However, the kurtosis of the revenue shows that the peak of the revenue generated by P&G was in 2011.
Earnings Per Share Chart
The central tendency of the earning per share decreased from 1.065, in 2009, to 0.915, in 2012. Thereafter, it increased to 0.965, in 2013, and further increased to 1.0025, in 2009. This trend in the earning per share mean was similar to the observed in the general earning per share observed over the years, as discussed above. This means that the profitability of the company decreased from 2009 to 2012 then afterwards increased in 2013 and 2014. However, the standard deviation of the EPS across the five years was not uniform. It decreased from 2009 to 2011, then slightly increased in 2012 and 2013 but further decreased 2014. The skewness of the EPS shows some symmetry whose peak was in 2011, as shown by the kurtosis of the data. The general trend of the skewness and kurtosis of the EPS showed some predictability.
Conclusion from the Statistics
From the stock price statistics, the decreasing stock price by -1.07% from its previous value as at 25th September 2014, alluded to the fact that the company could be performing poorly in its market share. When analyzing the revenue income over the years from 2009 to 2014, it was found out that the revenue increased from 2009 to 2008 uniformly but then dropped in 2014. The causes of such a trend were only speculations at that level. However, when the EPS trend was analyzed, it seemed to confirm and clear some doubts about P&G’s recent dwindling performance. The EPS was found to be on a decreasing rate from 2009 to 2012 then increased towards 2014. This trend reflected the poor performance of P&G from 2009 to 2012 then an improving trend from 2012 to 2014.
Since companies rely quite a lot on its investors and profits made over the years to improve and expand its market share, a drop in the 2014 revenue could be explained in one possible way. Perhaps the principal investors in P&G were keenly studying the Earning per Share or P&G over the years. As discussed above, the EPS helps to gauge the profitability of any given company. The continually decreasing trend in the EPS could have sent a red light signal to most investors. Investors would not wish to invest where they are making losses. Therefore, they will always be keen on the company’s profitability over the years. A downward trend in profitability of a company will scares away investors, while the upward trend in profitability will obviously attract many investors. In fact, investors may use all possible means to woo the company to accept their investment.
Most investors are likely to have withdrawn their investments from P&G around 2011 to 2013 period. The withdrawal of the investors could have destabilized P&G’s manufacturing trends due to insufficient funds. Therefore, this effect is likely to have led to a decrease in revenue in the next year, which was 2014. The reason behind it is the products released to the market are likely to have been few, which affected the sales of that year. The reduced revenue could have been furthered by other factors like exit of loyal consumers due to other new similar brands in the market. Another factor can be the depreciation of the company assets, which affects production.
However, the next question to ask at this stage is what happened to the company to initiate the increasing trend of the EPS from 2012 to 2014. Perhaps, the withdrawal of many investors made the management to re-strategize on the best course of action, to improve the company’s profitability, to lure back the investors or attract new ones. There are high chances that the strategies laid and the decision made on the best course of action bore fruit. That may explain the sudden change of the EPS between 2012 and 2013, from an EPS of 3.66 to an EPS of 3.86. The change became uniform when 2014 fiscal year reflected an EPS of 4.01.
There is an improved profitability from the EPS rising trend, looking at the latest development in the company. The company board of management must have effected well some of the various steps involved when implementing turnaround management. They must have sat down and ascertained the current and future viability of the company. This move is likely to have been with an effort of finding out the reasons for the downward trend of the company’s profitability. Then, they must have laid down a strategic plan to counter the unprofitability. The strategic plan must have aimed at profit maximization with the primary minimum input. Thereafter, the managers must have worked hard to restructure the P&G’s business to the strategic plan. Afterwards, as a final step, they returned the company to its normal operations, but having focus on the sustainability of the profit growth (Procter & Gamble, 2010).
This explanation is the best befitting the sudden change in the EPS, the profitability gauging parameter. Since the EPS has become consistent for the two consecutive years, it is likely that the strategic plan picked by the company is working out. Therefore, any keen investor should be able to see the almost double rate in the change of the EPS and calculate the company’s probable profitability in the next two years.
Anyone investing in P&G is likely to realize large profits if not double towards their investments. P&G is likely to be back to its original profitability position as it was in 2009, and has high chances of even doing much better. Therefore, gauging from that, it is a recommendation that investing in P&G Company is a worthwhile venture that is likely to bear much fruit.
Personally, I will be keen to invest my money in Procter and Gamble Company. From the conclusions from the statistics and the recommendations, a change in the EPS was notable. As already discussed, the EPS shows the profitability of the company. The rising EPS of the company indicates a high probability of the company making great profits in the near future. In fact, there may be an almost double rate in the change of the EPS in the next two fiscal years after 2014. This observation means the company may make double profits. Profits made by the company will obviously trickle down to its investors. As an investor in P&G, I will be able to benefit greatly from the profitability of the company. It was also observed from the statistics that the dividends from the company to its investors were on an increasing trend from 2009 to 2014. That means that the investors continued benefiting from the company inasmuch as its profitability had been dwindling. It is unlikely that the rising trend of dividends that P&G offered to its investors will decrease. Therefore, I am assured that when I invest in P&G, I will make a profit, which is likely to increase or even double. This observation is a nice package that will encourage me the more to make my investments in P&G.
Global Top 50 brands. (2013, April). SPC, 38-51.
Procter & Gamble Co (PG) . (n.d.). Retrieved September 25, 2014, from Reuters: http://www.reuters.com/finance/stocks/overview?symbol=PG
Procter & Gamble Co. (PG). (2014). Retrieved September 25, 2014, from Stocks
Analysis on Net: http://www.stock-analysis-on.net/NYSE/Company/Procter-Gamble-Co/Analysis/Revenues
Procter & Gamble Company (The) Revenue & Earnings Per Share (EPS). (2014). Retrieved September 25, 2014, from Nasdaq: http://www.nasdaq.com/symbol/pg/revenue-eps
Procter & Gamble. (2010 ). Now & for Generations to Come. Sustainability Overview, 4-32.
Appendix 1: Procter & Gamble Co., Income Statement, Revenues (USD $ in millions)
12 months ended
Jun 30, 2014
Jun 30, 2013
Jun 30, 2012
Jun 30, 2011
Jun 30, 2010
Jun 30, 2009
Snacks and Pet Care
Fabric Care and Home Care
Baby, Feminine and Family Care
Table 1: Revenue / Earning Per Share (EPS) Summary (2012 — 2014) (These statistics are for past 5 years QUARTERLY continuation on table 2 below)
Table 2: Revenue / Earning Per Share (EPS) Summary (2009 — 2011) (Continuation of table 1)
Appendix 3: Company Earnings Overview
Procter & Gamble’s net sales worldwide
Revenue of Procter & Gamble worldwide
Net sales of Procter & Gamble in the U.S.
Appendix 4: P&G Competitors in the Stock Market
Johnson & Johnson (JNJ.N)
Unilever N.V. (UNc.AS)
Unilever N.V. (UNIA.AS)
Unilever N.V. (UN_pa.AS)
Unilever N.V. (UN_p.AS)
Unilever N.V. (UN_pb.AS)
Unilever plc (ULVR.L)
L’Oreal SA (OREP.PA)
Kimberly Clark Corp (KMB.N)
Colgate-Palmolive Company (CL.N)
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