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OCTOBER 2018 OUTLOOK ON PROCTER AND GAMBLE CO. (P&G)

OCTOBER 2018 OUTLOOK ON PROCTER AND GAMBLE CO. (P&G)

OCTOBER 2018 OUTLOOK ON PROCTER AND GAMBLE CO. (P&G)


Current P&G Stock Outlook:

  • In response to P&G’s quarterly earnings announcement, which beat Wall Street estimates on both the top and bottom lines, the stock jumped by $7/share from $80.24 to $87.30.

  • We are increasing our 12-month price target from $91/share to $94/share.  In the event P&G outperforms again in the second quarter, and provides additional signs of a sustainable turnaround, we anticipate increasing our price target once again.

  • The stock, even with the recent runup in price, continues to represent good value, relative to the overall market. This conclusion is based on a combination of the 3.3% dividend yield and the increasing probability the company is finally showing the benefits from its past restructuring programs. We are also hopeful that Nelson Peltz, the Board, and David Taylor will be more collaborative in terms of bringing bigger ideas and holding management accountable to improving results short-term.

  • Wall Street analysts, who forecasted a price target of $82.08/share last quarter, have increased their average 12-month stock price target by a whopping $6 plus to $88.42/share Analyst forecasts now range between $78/share and $100/share, still indicating disagreement between “the experts” on the company’s outlook and valuation.

  • We believe David Taylor has bought himself more time, and we continue to believe if Nelson Peltz, David, and the Board collaborate, good things will happen for the business and the share price.

 

Highlights of P&G’s Quarterly Results:

  • P&G quarterly sales gains marked their strongest performance in five years, driven primarily by volume growth, product innovation, and a healthy U.S. economy.

  • First quarter FY 2019 produced revenue of $16.69 billion, exceeding Wall Street expectations of $16.46 billion.

  • P&G produced total organic sales growth of 4%, driven by a 3% lift in volume growth.

  • First quarter Core EPS rose 3% over the same period last year to $1.12, exceeding analyst estimates of $1.09 per share.

  • Organic Sales increased in four of five business units, and nine of their ten product categories, led by Beauty with a 7% increase versus the year ago period. P&G grew organic sales in 12 of their 15 largest markets in Q1.

  • Fabric & Home Care, P&G’s largest business unit, grew organic sales by 5% compared to the same quarter last year. 

  • After declining organic sales growth during 2017, Grooming made a comeback by growing organic sales by 4%. This was attributed to product innovation, investments in direct-to-consumer programs, and increased pricing in some markets.

  • Baby, Feminine and Family Care was the lone segment to produce negative organic sales growth, down 1% versus the year ago quarter. This was driven primarily by poor performance from the Luvs diaper brand.


Fiscal Year 2019 Guidance:

  • The company maintained Fiscal Year 2019 guidance for organic sales growth ranging between 2% and 3%.

  • P&G lowered the range for FY 2019 all-in sales growth to -2% to 0%, reflecting foreign currency headwinds of -3% to -4%.

  • They reiterated FY 2019 guidance for Core EPS growth of 3% to 8%. From our perspective, this is a very broad range and reflects a combination of management’s conservatism and uncertainty in the current environment.

  • For FY 2019, the company is forecasting dividends of $7 billion and share repurchases up to $5 billion.

  • As pointed out last quarter, we anticipate a significant increase in after-tax cash flow due to corporate tax reform. The company has not identified the tax savings in the forecast or how they will redirect the proceeds It to increase shareholder value. In our opinion, we think this is an opportunity for Jon Moeller, CFO, to provide increased transparency and build credibility with institutional and retail shareholders who would like more clarity on this part of his forecast guidance.  

 

Understanding our $94 Price Target:

  • Nelson Peltz and Trian Partners will bring Shareholder Point of View to the Board and Management

    • Nelson and Trian have a strong track record of adding value for shareholders and holding management accountable

    • Longer term, call it 3-4 years, we believe Trian has the potential to bring an additional $30 to per share in value to the price of the stock. Its arguable, they have already brought $10.

  • Continued Cost Cutting

    • P&G continues to extract another $10 billion in costs, focused on reducing overhead, lowering material costs, and increasing manufacturing and marketing productivity. It is not clear how much of this cost savings will drop to the bottom line, given increased transportation costs, rising raw material costs, unfavorable mix, lower pricing, and volatile foreign exchange.

  • Macroeconomic, Political, and Competitive Risks

    • P&G identified several key risks that they have not taken into consideration in their guidance: Significant strengthening of the US dollar, further rising commodity prices, continued political and economic volatility, significant deceleration of market growth rates, and increased competition on highest margin products.



The above material is not investment advice and should not be relied upon by any person in making financial investment decisions.  The price of P&G shares may go down in value and at no time reach the above listed Lenox price target.  Any persons reading these materials should not take any actions without first contacting their investment and tax advisor.


 

Past Performance is not indicative of future results.

 

This newsletter is limited to the dissemination of general information pertaining to its investment advisory/management services. This is not intended to be personalized investment advice. Please contact a Lenox Wealth adviser if you would like additional information.

Source: P&G Earnings Release 10/19/2018

August 2018 Outlook on Procter and Gamble Co. (P&G)

August 2018 Outlook on Procter and Gamble Co. (P&G)

August 2018 Outlook on Procter and Gamble Co. (P&G)

 

Current P&G Stock Outlook:

  • We are maintaining our 12-month price target of $91/share.

  • We believe the forecast numbers being provided by P&G’s senior management for 2018/2019 are conservative, after factoring in tax savings and share repurchases.

  • The current stock price, even with the recent runup, we believe represents an unusual value, especially with the dividend yield now close to 3.5%.

  • P&G share attractiveness stems from the continued return of shareholder value through increased dividend payouts and share repurchases ($60.5 billion over the last ten years!), yet the company’s market capitalization has remained fairly stagnant since 2008.

  • Wall Street analysts have an average 12-month stock price target of $82.08/share. Analyst forecasts range between $72/share and $93/share, indicating there remains disagreement between experts on the company’s outlook and valuation.

  • As we indicated in our prior outlook, unfortunately, there could be substantial risk that David Taylor might be replaced, this time by an outside CEO candidate.

  • We were surprised the Board, including Nelson Peltz, approved such conservative earnings guidance for 2018/2019.

  • Is this a sign they are giving David a “layup” to buy more time to deliver on his plans, or is there an agreement at the Board level to not rock the boat while CEO recruiting efforts to find a more transformational leader occur quietly behind the scenes?

 

Highlights of P&G’s Quarterly and Fiscal Year (FY) 2018 Results:

  • For the fourth quarter FY 2018, P&G delivered modest incremental growth, exceeding Wall Street bottom line estimates, but missing on the top line, with revenue coming in short at $16.50 billion vs. $16.54 billion expected.

  • Fourth quarter FY 2018 produced net sales of $16.50 billion, representing a mere 1% increase year over year.

  • P&G had organic sales growth of 1% for the fourth quarter driven by 3% organic volume growth, they noted pricing was a -2% headwind.

  • Fourth quarter Core EPS rose 11% over the same period last year to $0.94, exceeding analyst estimates of $0.90 per share.

  • Once again, Organic Sales increased across three of their five business segments, led by the beauty segment with a 7% increase in organic sales year over year.

  • As expected, the Grooming & Baby Care segments continued to face headwinds (i.e., rising commodity prices and increased competition) in Q4 with Grooming experiencing a 3% decline in organic sales and Baby Care falling 2%.

  • For Fiscal Year 2018, P&G reported total net sales of $66.8 billion, an increase of 3% year over year, including a 2% positive impact from foreign exchange.

  • Total FY 2018 Core Earnings Per Share came in at $4.22, representing an increase of 8% from the prior year.

  • During FY 2018, P&G returned $14.3 billion to shareholders through $7.3 billion in dividends and $7 billion in share repurchases.

 

Fiscal Year 2019 Guidance:

  • Fiscal Year 2019 guidance for organic sales growth ranging from 2% to 3%.

  • P&G expects FY 2019 all-in sales growth of approximately 0% to 1% versus 2018.

  • FY 2019 guidance for Core EPS growth is 3% to 8%.

  • For FY 2019, dividends are expected to be $7 billion, and the company expects to repurchase up to $5 billion in common shares.

  • At this point it remains unclear how P&G will utilize the increased after-tax cash flow from corporate tax reform to increase long-term shareholder value in Fiscal Year 2019 and beyond.

  • A key takeaway was the company’s announcement that after more than a year of trying to combat weak demand with lower prices on staples like Tide Detergent and Gillette razors, they have begun rolling out price increases in North America of 4% on Pampers diapers, and 5% on Bounty, Charmin, and Puffs brands.

 

Understanding our $91 Price Target:

  • Nelson Peltz and Trian Partners will bring Shareholder Point of View to the Board and Management

    • Nelson and Trian have a strong track record of adding value for shareholders and holding management accountable, especially in large consumer staples who are not adapting quick enough to changing consumer habits.

    • Longer term, call it 3-4 years, we believe Trian has the potential to bring an additional $30 to $40 per share in value to the price of the stock.

    • P&G closed at $80.65 on August 1, 2018. The stock has fallen 12.2% year-to-date, putting added pressure on Nelson and Trian to deliver better results to both P&G shareholders and Trian investors.

  • Continued Cost Cutting—P&G continues to extract another $10 billion in costs, focused on reducing overhead, lowering material costs, and increasing manufacturing and marketing productivity. It is not clear how much of this cost savings will drop to the bottom line, especially given major resistances in the form of increased transportation costs, rising raw material costs, unfavorable mix, lower pricing, and volatile foreign exchange.

  • Macroeconomic, Political, and Competitive Risks—P&G identified several key risks that they have not taken into consideration in their guidance: Significant strengthening of the US dollar, further rising commodity prices, continued political and economic volatility, significant deceleration of market growth rates, and increased competition on highest margin products.

 

The above material is not investment advice and should not be relied upon by any person in making financial investment decisions. The price of P&G shares may go down in value and at no time reach the above listed Lenox price target. Any persons reading these materials should not take any actions without first contacting their investment and tax advisor.

 

Past Performance is not indicative of future results.

This newsletter is limited to the dissemination of general information pertaining to its investment advisory/management services. This is not intended to be personalized investment advice. Please contact a Lenox Wealth adviser if you would like additional information.

Source: P&G Earnings Release 07/31/2018

May 2018 Outlook on Procter and Gamble Co. (P&G)

May 2018 Outlook on Procter and Gamble Co. (P&G)

 May 2018 Outlook on Procter and Gamble Co. (P&G)

 Current P&G Stock Outlook:

  • We are reducing our $99/share price target to $91/share, reflecting increased concerns about aggressive price competition in the Grooming and Baby Care businesses.

  • We continue to believe the forecast numbers being provided by P&G’s senior management and conclude the current stock price may represent an unusual value, especially with the dividend yield close to 4%.

  • For perspective, P&G’s total market cap at $183 billion has not changed over the last 10 years. Over that same time-frame, the dividend yield has increased from 2.5% to almost 4%, and the company has repurchased over $59.2 billion in stock.

  • For perspective, Wall Street analysts have an average 12-month stock price target of $81.79/share. There has been a $12.13 decrease in Wall Street Analyst average since our January 2018 Outlook. Analyst forecasts now range between $72/share and $98/share, representing a whopping $26/share difference.

  • This sudden decrease, and unusually wide range of analyst forecasts, suggests that some Wall Street analysts are skeptical about P&G’s plans and ability to deliver on their provided guidance.

  • Unfortunately, this may also indicate there may be increased risk that Jon Moeller, David Taylor or both could be at risk of losing their jobs. We do not believe this would be good for the company, employee morale, or the short-term stock price.

  • We would hope that Nelson Peltz proceeds slowly as he enters the Board and are hopeful that he gives David and Jon adequate time to fully explain the company’s current strategy and results.

Highlights of P&G’s Quarterly Results:

  • For the third quarter FY 2018, P&G delivered modest incremental growth, exceeding Street estimates on both the top and bottom line.

  • P&G reported third quarter FY 2018 net sales of $16.3 billion, a 4% increase versus the prior year.

  • P&G had organic sales growth of 1% for the third quarter on 2% organic volume growth.

  • Core EPS rose 4% over the same period last year to $1.00, exceeding analyst estimates of $0.98 per share.

  • Organic sales increased in three of five business segments, led by the beauty segment with a 5% increase in organic sales year over year.

  • As expected, the Grooming & Baby Care segments are challenged, with each seeing a 3% decline in organic sales.

  • Operating cash flow for the quarter was $3.4 billion.

  • In Q3, P&G returned $3.2 billion to shareholders through a combination of $1.8 billion in dividends and $1.4 billion in share repurchases.

  • On April 10, 2018, P&G announced a dividend increase of 4%, from $0.6896 to $0.7172 per share. This marks an improvement over the 1% dividend increase in 2016 and 3% dividend increase in 2017. For perspective, historically dividend increases have averaged around 8%.

  • P&G also announced the purchase of Merck KGaA Consumer Health Business for $4.2 billion. The purchase adds a differentiated, growing portfolio of OTC products, while expanding their footprint into a majority of the world’s top 15 OTC markets, including Asia & Latin America

Fiscal Year 2018 Guidance:

  • P&G maintained its guidance for organic sales growth in the range of 2% to 3%, adding they are at 1.4% fiscal year to date and expect to be at the low end of the range.

  • P&G expects all-in sales growth of approximately 3% for FY 2018.

  • P&G improved the range of its FY 2018 guidance for Core EPS growth to 6% to 8%, up from 5% to 8%.

  • For FY 2018, dividends are expected to be in the $7.5 billion range, and share repurchases are expected to fall in the range of $6 to $8 billion.

Understanding $91 Price Target:

  • P&G did beat the third quarter forecast

    • Although the revenue lines continue to reflect slow growth. P&G did beat the earnings forecast for the quarter.

    • We did not understand the selloff in the stock last quarter, and were surprised to see it sell off more after the quarterly earnings were released.

    • Based on the selloff in the price of the stock, there does appear to be an increasing credibility gap between P&G’s senior management and Wall Street.

    • David Taylor joined Jon Moeller on the call for the first time. We see this as a strong positive.

    • David & Jon were both open and direct about P&G’s challenges, especially in the grooming and baby care businesses which was encouraging. The news they shared was not a surprise. As David indicated, we understand the problems, we have seen them before, and we know how to fix them.

    • When challenged by the analysts about the future attractiveness of the Consumer Package Goods Sector, the ability of P&G to add value for consumers, and the timing of Merck KGaA Consumer Health Business we thought David and Jon provided solid answers.

  • We believe that Nelson Peltz and Trian Partners will bring Shareholder Point of View and increased focus to the Board and Management.

    • Nelson and Trian have a strong track record of adding value for shareholders and holding management accountable.

    • We believe Trian has the potential to bring an additional $30 to $40/share in value to the price of the stock. We do not believe that P&G’s current plan brings a “private equity” mindset to the company, which may create opportunity.

    • Though unpopular, we believe adding Clayt Daley to the mix will help streamline communication, create a better working relationship with Trian, and reduce the risk that David Taylor or Jon Moeller leave the company prematurely or for the wrong reasons.

    • The 2018/19 Firm forecast will be a key testing ground for Nelson, P&G’s senior management, and the Board.

  • Continued Cost Cutting—P&G continues to focus on driving out organizational inefficiencies. After completing a $10 billion initiative launched in 2012, P&G launched another $10 billion cost savings initiative. The company expects much of this cost savings to come from driving down the cost of goods and increasing productivity. Based on guidance, it is unclear what percentage of the $10 billion, will drop to the bottom line.

  • Macroeconomic, Political, and Competitive Risks—P&G identified several key risks that they have not taken into consideration in their guidance: Significant strengthening of the US$, further commodity cost increases, further political and economic volatility, and significant deceleration of market growth rates.

 

The above material is not investment advice and should not be relied upon by any person in making financial investment decisions.  The price of P&G shares may go down in value and at no time reach the above listed Lenox price target.  Any persons reading these materials should not take any actions without first contacting their investment and tax advisor.

 

 

 

 

Past Performance is not indicative of future results.

 

This newsletter is limited to the dissemination of general information pertaining to its investment advisory/management services. This is not intended to be personalized investment advice. Please contact a Lenox adviser if you would like additional information.

Source: P&G Earnings Release 04/19/2018

A Letter to P&G Employees

A Letter to P&G Employees

A Letter to P&G Employees

I am asking the P&G community for help.  This includes alumni, retirees, and current employees.

We See a Significant Change Coming for Most Large Companies Including P&G

  • We believe that 1/3 of the S&P 500 companies will restructure and be gone in the next ten years.

  • We believe that the remaining 2/3 will reduce their headcount by 50%.

  • In order to win, large companies will need to redefine what is kept inhouse and what is outsourced.

The 2018/19 Firm Forecast Process Will Involve the Board

  • Nelson Peltz will join the Board on March 1. He is an advocate for change, backed by P&G’s largest shareholders.

  • The 2018/19 Firm Forecast will be the first Order of Business for Mr. Peltz.

  • Mr. Peltz is advocating for a significant restructuring of the company, giving significant authority of the overhead spending and reporting lines to 3 newly formed business units.

  • The primary focus will be on SR&A spending. This includes what is spent inside and what is spent outside, as well as, who has control over the reporting lines and allocation of overhead.

  • If collaboration between the Board representing shareholders and Management representing employee interests does not improve, there could be another proxy fight with more Board seats and control of the Board in play.

Most P&G Employees May Not See What’s Coming

  • These are unusual times. Most in the P&G Community did not believe an activist investor could get a seat on P&G’s Board.

  • The interest of current employees and retired P&G employees, who own stock and stock options may be split.

  • Most employees are accustomed to long term stability, incremental change, and substantially all decision-making authority for the Board and Management held in the hands of P&G’s CEO.

  • David Taylor’s freedom to share what is happening inside the Board room could be very limited.

  • The days of keeping your head down, working hard, and retiring in your 50’s may not be the highest probability or best outcome for many loyal P&G employees.

  • To adequately prepare for change, employees will need advice and support and do not know who they can trust.

What Lenox is Doing to Help

  • Anticipating these possible changes, we expanded our capabilities to include career planning.

  • Lenox has entered into licensing and consulting agreements with United Capital, Kolbe, Strength Finder, John Maxwell, and others to help P&G employees sort through a combination of both their career options and financial planning opportunities.

  • We will be hosting a series of Wealth Creation seminars to help P&G employees understand their choices and how their career and financial plans go hand in hand.

How Can You Help

  • Lenox has not done many seminars in the past. We have not typically asked individuals to reach out to potential clients on our behalf. At the risk of being bold and out of character, we are asking for your help.

  • Please share this letter with current employees and other members of the community.

  • Encourage the employees you know to attend our next Seminar for the P&G Community on February 28th.


Sincerely Yours,

John C. Lame

CEO, Lenox Wealth

 

This material presented by Lenox Wealth is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Investments in securities and other investment products entail risk, including the risk of loss.  Opinions expressed are those of Lenox Wealth Management and are subject to change, not guaranteed and should not be considered recommendations to buy or sell any security.  The S&P 500 Index (“S&P 500”) is a market-value-weighted index consisting of 500 stocks chosen for market size, liquidity, and industry group representation and does not include the reinvestment of dividends. The S&P 500 is an unmanaged composite and investors cannot directly invest in the index.

SEMINAR: Lenox Talks P&G’s Big Opportunity

SEMINAR: Lenox Talks P&G’s Big Opportunity

SEMINAR: Lenox Talks P&G’s Big Opportunity

Lenox cordially invites you to attend a special event with guest speakers John Lame (CEO) and Steve Reder (President). This event will take place at two different times to better accommodate schedules.  A complimentary meal will be served.

Topics to be covered include:

  • Why the 2018/2019 Firm Forecast is So Important

  • Lenox’s P&G Outlook

  • What We Know About Trian & Nelson Peltz

  • P&G’s Big Opportunity

  • How Your Career and Finances Go Hand in Hand

  • How Lenox Can Help You and Your Family

Space is limited. Please RSVP by February 23 to reserve your seat. Registration begins 30 minutes prior to each session. Feel free to invite family, friends or coworkers - whoever might also be interested in learning more about the future of P&G and the opportunities this outlook presents.

 

Click below to get directions or RSVP for the event:

Lenox Wealth Management is not an authorized representative of your company or the company savings plan. Lenox Wealth Management provides advice and makes recommendations based on the specific needs and circumstances of each client. Investing involves risks and clients should carefully consider their own investment objectives and never rely on any marketing piece to make decisions. The content provided is for information only and is not a recommendation or solicitation to buy a specific product or investment. Lenox Wealth Management does not offer tax advice. Please consult your tax advisor for more information about your individual situation.

January 2018 Outlook on Procter and Gamble Co. (P&G)

January 2018 Outlook on Procter and Gamble Co. (P&G)

January 2018 Outlook on Procter and Gamble Co. (P&G)

Current P&G Stock Outlook:

  • We are increasing our 12-month outlook from $93/share to $99/share.

  • This increase represents a combination of the latest quarterly update from P&G plus the addition of Nelson Peltz to the Board effective March 1.

  • As you will recall, in our prior outlook, we earmarked a $6/share reserve for upside reflecting the positive impact we believed Trian Partners could have on the stock price if Nelson Peltz was elected to the Board.

  • For perspective, Wall Street analysts have an average 12-month stock price target of $93.92/share. Analyst forecasts currently range between $80/share and $105/share.

  • Please note there has been a $0.34 increase in Wall Street Analyst average since our October 2017 Outlook.

  • We are willing to add another $5-$10/share to the price forecast if David Taylor, the Board and Trian can develop a collaborative relationship.

Highlights of P&G’s Quarterly Results:

  • P&G continues to deliver against plan, but the overall results, especially for top line revenue growth, continue to be very incremental.

  • P&G reported second quarter FY 2018 net sales of $17.4 billion, a 3% increase versus the prior year (note: 1% positive impact due to foreign exchange).

  • P&G had organic sales growth of 2% for Q2 fiscal year 2018.

  • Core earnings per share increased 10% to $1.19, driven primarily by increased net sales & a lower core effective tax rate.

  • Organic sales increased in three of five business segments. The beauty segment was strongest with 9% increase in organic sales year over year. Grooming segment continued to be challenged, seeing a 3% decline in organic sales.

  • Operating cash flow for the quarter was $3.7 billion.

  • In Q2, P&G returned $1.8 billion to shareholders through dividends, and repurchased $1.8 billion of common stock.

  • In April 2017, P&G announced a dividend increase of 3%, from $0.6695 to $0.6896 per share. Historically, dividend increases have averaged around 8%. This is an improvement the versus last dividend increase, in April 2016, which was only 1%.

  • P&G anticipates net earnings benefit of approximately $135 million from Tax Act in FY 2018, with the benefit doubling in 2019, and reaching $600 million in 2020 as the tax rate is fully phased in.

Fiscal Year 2018 Guidance:

  • FY 2018 guidance is again incremental; P&G reiterated its guidance for organic sales growth in the range of 2% to 3%, with all-in sales growth of around 3%.

  • P&G raised its FY 2018 top end guidance for Core EPS growth to 5% to 8%, up from 5% to 7%, which is attributed to the potential benefits from the Tax Act.

  • For FY 2018, dividends are expected to be in the $7.5 billion range.

  • Raised FY 2018 range for share repurchases to $6 to $8 billion, up from $4 to $6 billion.

  • We expect the combination of Trian headlines, dividends and share repurchases will keep modest upward pressure on the stock while reducing downside risk if there is U.S. market correction due to a recession.

Understanding our $93 to $99 increase Price Target:

 

P&G did Beat the OND forecast

Although the revenue lines continue to reflect slow growth. P&G did beat the earnings forecast for the quarter.

  • We do not understand the selloff in the stock. We believe there is an increasing credibility gap between Jon Moller and Wall Street. In our opinion, if Jon was more open and direct about P&G’s challenges, it would be favorably received by Wall Street. For example, we don’t agree problems in Algeria are a major driver of the company’s results.

  • Although P&G has delivered top line revenue growth at the low end of guidance for the last two quarters, the company maintained its annual target for organic sales growth. This, hopefully, signals better news is coming in the remaining two quarters.

  • Organic Sales growth is lower than category growth rates, indicating P&G can lose share and still meet the forecast.

  • P&G has increased the forecast for reduced corporate taxes. We believe their estimates are very conservative.

Nelson Peltz and Trian Partners will bring increased focus to the Board and Management.  

  • Nelson and Trian have a strong track record of adding long term value for shareholders

  • We believe Trian has the potential to bring an additional $30 to $40/share in value to the price of the stock. We do not believe that P&G’s current plan brings a “private equity” mindset to the company.

  • We look forward to a day where Trian, David Taylor, and P&G’s Board work in collaboration. Although it’s been painful to watch, adding Nelson to the Board is a start. The good news is David and the Board’s lead director, not P&G’s legal department, can provide leadership and set the tone from here.

  • We believe naming Meg Whitman, a seasoned P&G alum, corporate executive, and tenured P&G director, as lead director will help bridge the gap even further.

  • Providing the Board and Trian’s staff more access to both P&G’s leadership and financial data could help.

  • Finally, creating a working relationship between Jon Moeller, Clayt Daley, and Trian’s resources could substantially improve communication, create a better understanding of where P&G and the Wall Street investment community are coming from, and accelerate progress.

  • We believe a more active and engaged Board, with increased leadership coming from David, Jon, Clayt, and Trian will help P&G create a “safe environment” for newly recruited outside talent to accelerate the change.

Continued Cost Cutting—P&G continues to focus on driving out organizational inefficiencies. After completing a $10 billion initiative launched in 2012, P&G launched another $10 billion cost savings initiative. The company expects much of this cost savings to come from driving down the cost of goods and increasing productivity. Based on history and guidance, it is unclear what percentage of the $10 billion, if any, will go to the bottom line.

Sales Growth P&G is maintaining their forecast for all-in sales to increase 3% in fiscal year 2018.

Share Repurchases—P&G completed $5.2 billion of direct share repurchases in fiscal year 2017. The company expects to buy back an additional $6 to $8 billion in fiscal year 2018. Share repurchases will continue to be a critical component of our price target.

Macroeconomic, Political, and Competitive Risks—P&G identified several key risks that they have not taken into consideration in their FY 2018 guidance: Significant deceleration of market growth rates, further political and economic volatility, further currency weakness, and further commodity cost increases.

 

The above material is not investment advice and should not be relied upon by any person in making financial or investment decisions.  The price of P&G shares may go down in value and at no time reach the above listed Lenox price target.  Any persons reading these materials should not take any actions without first contacting their investment and tax advisor.

 

Call us for a complimentary 1-hour review.  Call 513.618.7080 or contact us here to Fund a Life You Love.

 

Past Performance is not indicative of future results.

This newsletter is limited to the dissemination of general information pertaining to its investment advisory/management services. This is not intended to be personalized investment advice. Please contact a Lenox adviser if you would like additional information.

Source: P&G Earnings Release 01/23/2018