On Sep 2, shares of The Procter & Gamble Company (NYSE:PG) rallied to a new 52-week high of $88.87. The stock pulled back to end the trading session on Friday at $88.20. This consumer goods giant with a market cap of around $235.44 billion has seen its shares rise roughly 11.1% so far this year as against a 6.6% increase for the S&P 500 over the same period.
What’s Driving P&G?
Though weak sales have been offsetting margin improvement from pricing gains and cost cuts for some time now, P&G is investing in its brands and products as well as re-designing the supply chain to boost productivity and organic growth.
Under the portfolio strengthening and simplification plans announced in Aug 2014, P&G aims to streamline its business and focus more on prime brands, including Billion Dollar Brands like Tide, Pampers and Oral-B.
Per the strategy, that is nearing its completion, the company has eliminated almost 60% of its brands (roughly 105 brands) that were witnessing decline in sales and profits.
Late last week, P&G initiated an exchange offer for the separation of “P&G Specialty Beauty Brands” as the company proceeds with its proposed tax-efficient Reverse Morris Trust transaction with Coty Inc. COTY, announced on Jul 9, 2015.
Following the closure of the beauty brands merger with Coty this October, P&G will have a portfolio of about 65 consumer and shopper-preferred leading brands focused on 10 categories under four industry-based sectors. Traditionally, these brands have grown faster and have proved more profitable than the others.
Though the divesture of the underperforming brands will hurt near-term sales, it is expected to boost profits over the long haul.
Notably, the company’s organic sales rose 2% in fourth-quarter fiscal 2016 driven by positive volumes for the first time in years.
Zacks Rank & Key Picks
P&G currently has a Zacks Rank #3 (Hold). Better-ranked consumer staples stocks are The Clorox Company (NYSE:CL) and Colgate-Palmolive Co. (NYSE:CL) . While Clorox sports a Zacks Rank #1 (Strong Buy), Colgate-Palmolive carries a Zacks Rank #2 (Buy).
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