Must-know: Renaissance Technologies' 2Q positions (Part 2 of 7)
Procter & Gamble
Renaissance Technologies added new positions in Procter & Gamble Co. (PG), Bed, Bath and Beyond (BBBY), ExxonMobil Corp. (XOM), Chevron Corp. (CVX), and Broadcom Corp. (or BRCM). It exited positions in Priceline Group (or PCLN) and Schlumberger (SLB).
The hedge fund disclosed a new position in Procter & Gamble Co. (PG) that accounted for 0.37% of the fund’s total portfolio. Bill Ackman’s Pershing Square sold off most of its stake in PG in 1Q14.
Procter & Gamble is a global leader in retail goods. It’s focused on providing branded consumer packaged goods. Its customers include mass merchandisers, grocery stores, membership club stores, drug stores, high-frequency stores, distributors, and e-commerce retailers.
The company has five reportable segments under U.S. generally accepted accounting principles (or GAAP)—Beauty, Grooming, Health Care, Fabric Care and Home Care, and Baby Care and Family Care.
Net sales increase 1% in 2014
Sales to Walmart Stores Inc. and its affiliates represented ~14% of PG’s total revenue in 2014. In fiscal year 2014, net sales increased 1% to $83.1 billion. Net sales in the U.S. accounted for ~35% of total net sales. PG posted annual core earnings per share (or EPS) of $4.22—an increase of 5% versus the previous year.
It said organic sales grew 3%. The sales were at or above the levels in each reporting segment last year. In July, PG completed the divestiture of its pet care operations in North America, Latin America, and other selected countries to Mars for $2.9 billion.
Fabric Care and Home Care, and Baby and Family Care segments’ organic sales increased 4%. The Health Care segment organic sales increased 2% due to growth in Oral Care. The Grooming segment organic sales increased 3% due to higher pricing and innovation on blades, razors, and appliances.
The Beauty segment organic sales were flat with gains from market growth and product and commercial innovation. The innovation was in hair care, deodorants, and personal cleansing products. This was offset by sales decreases in Salon Professional. It was also offset by Skin Care from competitive activity and market contraction.
Plans to streamline brand portfolio
The company makes Gillette razors, Pampers diapers, and Tide detergent. It has been in the news because its plans to sell around 90–100 of its brands. Selling the products will improve its stock market performance and its competitive position. Without naming the brands, the company said it will retain its core 70–80 brands that “are consumer preferred and customer supported.”
Management said on its fourth quarter earnings call that “the 70 to 80 brand portfolio has accounted for 90% of company sales and over 95% of profit” over the last three years. After selling off of these brands, the “new streamlined PG should continue to grow faster and more sustainably and reliably create more value,” CEO A.G. Lafley said. He added that this move will “create a faster growing more profitable company that is far simpler to manage and operate.”
The company has been seeing sluggish growth. It missed estimates on revenue for 4Q14. It noted in the previous quarter that, “We’re operating in a slow-growth, highly competitive environment, which places even greater importance on strong innovation and productivity improvement.”
PG implemented a $10 billion restructuring plan in 2012. It focused on job cuts and accelerating cost savings. It said that it expects organic sales growth in the low-to-mid single digit range in fiscal year 2015. Core EPS is forecasted to grow in the range of mid-single digits for the fiscal year.
PG announced a 7% increase in its quarterly dividend from $0.6015 to $0.6436 per share in April. The yield stands at 3.15%. It said in its annual report that dividends per common share increased 7% to $2.45 per share in 2014. The company repurchased $6 billion of common stock. Total dividend payments to common and preferred shareholders were $6.9 billion in 2014.
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