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Will P&G's (PG) Efforts Help Sustain Stock Momentum in 2019?

Zacks Equity Research

Procter & Gamble Company PG, also known as P&G, is one consumer staples stock that has displayed strength in 2018, thanks to its impressive growth strategies that include improvement of product portfolio through innovation as well as packaging and marketing initiatives. Further, the company is focused on improving productivity and cost savings to boost margins. These efforts have not only supported the company’s robust surprise trend but also helped maintain stock momentum all through the past year.

Clearly, the P&G stock has grown 1.2% in the past year against the industry’s decline of 2.3%. Additionally, the stock has displayed significant momentum in the past few months, owing to strong performance in first-quarter fiscal 2019. Notably, the stock has surged 12% in the past three months while the industry grew 5.1%.


Let’s get a closer look at the factors that position P&G for more growth in the year ahead.

Procter & Gamble’s products enjoy strong brand recognition and are sold in more than 180 countries. The company enjoys leading positions in over 75% of the categories in which it competes. Its 20 Billion Dollar Brands are some of the world’s most common household names. These products reached the Billion Dollar Brand status through sustained product innovation and geographic expansion.

The company’s long-term goals include growing organic sales modestly above (approximately 50 basis points) market growth, achieving core earnings growth in a mid to high-single digit and generating free cash flow productivity (ratio of free cash flow to net earnings) of over 90%.

The company focuses on improving its product portfolio through acquisitions and divestitures, which enable it to concentrate on its fast-growing businesses. Some of P&G’s recent acquisitions include the beauty brand ‘First Aid Beauty’ for $250 million in July 2018. This acquisition is likely to aid the company in regaining its position in the beauty space, which it lost two years ago, after selling its 43 beauty brands to Coty.

Further, the acquisition of Germany-based Merck KGaA’s consumer-health business for approximately 3.4 billion euro ($4 billion) looks promising. As part of the deal, P&G also acquired 51.8% stake in India-listed Merck Ltd. This buyout will bolster P&G’s OTC geographic footprint as Merck KGaA’s consumer health business is active in 44 countries and includes more than 900 products.

Moreover, Procter & Gamble is known for its impressive product development capabilities and marketing prowess. In order to sustain its brand appeal, the company focuses on innovation and expansion of its product portfolio, supported by strong marketing and commercialization. It consistently increased market share in fast-growing businesses over the years through innovation and product launches. It is also focusing on expanding in the e-commerce space, especially with the Gillette Shave Care brands. The company’s investments in promising innovation and go-to-market capabilities allow it to expand in more categories, geographies and channels, thus bolstering top- and bottom-line growth.

Additionally, the company remains focused on productivity and cost-saving plans to boost margins, thereby, lifting the profit level. It has been cutting costs to reduce spending across all areas like supply chain, research & development, marketing, and overheads. Cost savings have consistently provided 200-300 bps of year-over-year margin benefit each quarter since fiscal 2012.

As part of the February 2012 restructuring plan, P&G targets reducing non-manufacturing or overhead enrollment by 10% in five years. Later, the company expanded the plan, anticipating the generation of additional cost savings of up to $10 billion over the next five years (fiscal 2017-2021) in areas — including supply chain and cost of goods sold (COGS), marketing and digitization, and promotional spend effectiveness.


We believe that the aforementioned strategies and actions position Procter & Gamble for further growth in 2019. Moreover, this Zacks Rank #2 (Buy) company's expected long-term earnings growth rate of nearly 7% demonstrates its growth potential.

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