As one of the biggest consumer products companies around, Procter & Gamble (NYSE: PG) likely earns at least a small piece of your monthly spending budget. After all, it owns a dominant share of staple industries including shaving, toothpaste, laundry detergent, and diapers.
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Yet this nearly 180-year-old business can still pack surprises for investors. Here are a few key operating trends and facts that you may not know about P&G.
Annual revenue has declined sharply in each of the last two years. In fact, fiscal 2016 marked P&G's lowest sales point since 2006.
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Part of this brutal decline is due to missteps by the company that have led to significant market share drops. Its shaving business, for example, owns 65% of the global market today compared to 70% in fiscal 2013.
A bigger contributor to the sluggishness has been strategic, though. P&G shed over 100 brands from its portfolio in the past few years in a bid to become leaner, faster, and more profitable. As a result, it cleaved off about 15% of its sales base, but only about 5% of profits.
Image source: Getty Images.
P&G's strategy goes well beyond just removing its underperforming brands. Executives are nearly done with a complete reboot of how it does business. Every aspect of its operations, from manufacturing to advertising to shipping logistics, has seen a sharp reduction in complexity.
"We are a much simpler company," executives boasted in a recent investor presentation, with the number of manufacturing platforms down 50%, category/country combinations slashed by 70%, and 30% fewer employees.
Even though its sales base is down 11% in the last five years, P&G generated roughly the same total earnings in 2016, $10.5 billion, that it did back in fiscal 2012. Rising profitability has neutralized the slump as P&G's net operating margin passed 15% of sales last year.
The improvements put the company near the top of the list in its industry, beating rival Kimberly-Clarkby a solid margin.
P&G's 60-year dividend streak makes it one of the longest-running payouts in the market. Yet many investors might not know that this historic dividend recently accounted for over 100% of the company's annual earnings. The company paid out $2.59 per share in dividends in fiscal 2015 compared to $2.44 per share of profit.
P&G's dividend cushion slumped as the company booked one-time losses from discontinued business lines and foreign currency devaluations against the U.S. dollar. Thus, the dividend was never in as much trouble as reported earnings would suggest.
P&G's payout ratio based on earnings from continuing operations.
On the other hand, a $9 billion windfall from its beauty brand sales this year are temporarily swinging earnings -- and the payout ratio -- in the other direction. Adjusting for all of this noise, P&G's payout promise has held roughly consistent at an elevated, but not unmanageable, two thirds of earnings.
So far, cash returns are the most direct shareholder benefit to come out of P&G's strategic transformation. The combination of big brand sales, including multibillion-dollar franchises like Duracell, and the desire by management to simplify the business, has resulted in a transfer of a significant portion of the company to owners in the form of stock repurchases and dividends. P&G is on pace to deliver $18 billion of capital per year to its owners since the process started, including $22 billion in fiscal 2017 alone, for a total of $70 billion in fiscal 2016 through 2019.
The good news for investors is that the program pushed up their total returns through a period of unusually weak operating results. But now comes the real test: whether the company can return to the type of steady market share gains that powered its impressive long-term growth before the recent downturn.
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