Shares of Procter & Gamble (PG: Charts, News) slid this week after the company cut its earnings and revenue forecast for the second time this quarter. The consumer packaged goods conglomerate, long considered to be one of the most conservative investments on the Dow, slashed its "core earnings per share" forecast from a range between 79 and 85 cents down to 75 to 79 cents per share.
Unfavorable foreign exchange moves against the U.S. dollar were expected to shave 4% off total revenue for the year. Its forecast for organic sales growth, previously expected to grow by 4% to 5%, were reduced to a range between 2% to 4%. Investors have expressed discontent in the company, which has lost market share, raised prices unsuccessfully and posted a $1.5 billion writedown on old acquisitions over the past year. Daily Chart
Procter & Gamble also dashed hopes of a share buyback during the year. CEO Bob McDonald stated that the decision was necessary to help the company conserve capital to maintain its AA- credit rating, which is "a high priority in this volatile economic and political environment." McDonald also reiterated the company's target to reduce costs by $10 billion. In February, the company announced that it would cut 5,700 jobs by 2016 in response to investor dismay. The company's brands include Pantene, Crest, Gillette, Tide and Pampers, among others, and currently reaches customers in 180 countries. In the past, Procter & Gamble's weakness was regarded as a bellwether of global economic health, due to its far reaching brands. Investors are concerned that this may no longer be the case. While shares of P&G have slumped nearly 7% over the past twelve months, shares of primary rivals Unilever (UN
) and Colgate-Palmolive (CL
) have risen 3% and 15%, respectively. This suggests that it isn't a macro problem, as management is quick to claim, but a micro one. Alliance Bernstein analyst Ali Dibadj noted, "As a stock, we struggle with the stark contrast between the enormous opportunities that exist at P&G...and the company's incredibly mediocre performance." CFO Jon Moeller stated that P&G may have attempted to grow too fast in emerging markets, whose growth failed to counterbalance problems in the United States, Europe and other developed countries. "In retrospect," Moeller noted at an investor conference, "we may have overextended ourselves a bit with the pace of our portfolio and geographic expansions." Moeller also stated that the "commodity cost increases and market contractions" in emerging markets this year were unexpected. Taking note of this problem, McDonald has introduced a plan to focus on its "40 core markets", and scaling back its operations in non-performing emerging markets. He said P&G will only focus on the ten best performing emerging markets with the "highest growth potential." While McDonald did not list all the markets he intends to focus on, he emphasized the importance of China, Russia and Brazil, and the necessity of restarting growth in its core U.S. market. The relative strength of the U.S. dollar, primarily caused by the Eurozone crisis, has made increasing domestic revenue a top priority. Although shares of P&G trade at 14.7 times forward earnings, its 5-year PEG ratio of 2.3 signals sluggish growth ahead. However, most investors rely on P&G for its quarterly dividend of 56 cents per share, a 3.7% yield a today's prices. Despite current headwinds, the stock remains one of the safest, lowest-beta stocks on the market today. Astute investors, however, may want to check out Unilever and Colgate-Palmolive first, which offer similar safety and dividend yields, coupled with higher growth potential. Other News About PG Procter & Gamble Run Through The Wash, Stock Dives
Procter & Gamble shares slide, surprising conservative investors. Procter & Gamble Cuts Guidance on Currency Effects, Weak North American Performance
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