Is The Procter & Gamble Company (PG) a Strategic Bet?

This article was originally published on August 2nd.

The Procter & Gamble Company (NYSE:PG) reports preliminary financial results for the year ended 2013-06-30.

The Procter & Gamble Company (NYSE:PG)The Procter & Gamble Company (NYSE:PG) discussed it’s Q4 2013 earnings yesterday. Based on these results we analyze PG’s performance over the last twelve months (unless stated otherwise). Our analysis ispeer-based and we analyze PG compared to the following companies: Johnson & Johnson (NYSE:JNJ), L’oreal S.A (EPA:OR), Colgate-Palmolive Company (NYSE:CL), RECKITT BENCKISER (OTC:RBGPF), Kimberly Clark Corp (NYSE:KMB), Estee Lauder Companies Inc (NYSE:EL), HENKEL AG AND CO. KG (OTC:HENKY), The Clorox Co. (NYSE:CLX), Church & Dwight Co., Inc. (NYSE:CHD) and Unilever plc (LONDON:ULVR).

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The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Annual (USD million) 2013-06-30 2012-06-30 2011-06-30 2010-06-30 2009-06-30
Revenues 84,167.0 83,680.0 82,559.0 78,938.0 79,029.0
Revenue Growth % 0.6 1.4 4.6 (0.1) (5.4)
Net Income 11,312.0 9,169.0 11,797.0 10,946.0 11,293.0
Net Income Growth % 23.4 (22.3) 7.8 (3.1) (6.5)
Net Margin % 13.4 11.0 14.3 13.9 14.3
ROE % 17.3 13.9 18.3 17.6 17.1
ROA % 8.3 6.8 8.9 8.3 8.1

Long-term Strategic Bet?

While The Procter & Gamble Company (NYSE:PG)’s revenues growth has been below the peer median in the last few years (2.2% vs. 4.0% respectively for the past three years), the market still gives the stock an about peer median PE ratio of 21.1. The market seems to see the company as a long-term strategic bet.

PG’s annualized rate of change in capital of 3.8% over the past three years is less than its peer median of 5.6%. This below median investment level has also generated a less than peer median return on capital of 11.3% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.

Earnings Quality

The company’s net income margin for the last twelve months is around the peer median (13.4% vs. peer median of 12.0%). This average margin combined with a level of accruals that is around peer median (4.2% vs. peer median of 3.7%) suggests there possibly isn’t too much accrual movement flowing into the company’s reported earnings.

The Procter & Gamble Company (NYSE:PG)’s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Accrual Trend Charts

Quarterly Accruals Trend for Procter and Gamble (NYSE:PG)
Annual Accruals Trend for Procter and Gamble (NYSE:PG)

Interested in the complete fundamental analysis for Procter & Gamble?


Company Profile

The Procter & Gamble Company (NYSE:PG) provides branded consumer packaged goods to its consumers around the world. It operates through the following segments: Beauty, Grooming, Health Care, Fabric Care and Home Care and Baby Care and Family Care.  The company was founded by William Procter and James Gamble in 1837 and is headquartered in Cincinnati, OH.

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