Is Buying Procter a Gamble?
Procter & Gamble shares fell nearly 3 percent after fourth-quarter earnings and revenue forecasts were lowered. The world’s largest consumer products company cited softness in Europe, weak foreign exchange rates, and sliding U.S. sales as contributing factors behind its recent decline.
Joseph Altobello, managing director and senior analyst at Oppenheimer, suspects that this is a P&G-specific problem, because it is losing market share to competitors.
“If you look at other companies in the space like Colgate-Palmolive, Unilever, and Church & Dwight for example, they have done just fine recently in terms of growing the top line, instead of Procter, who has been the laggard there,” Altobello told CNBC’s “Squawk on the Street.”
P&G recently raised prices across the board by $3.5 billion to meet the rising cost of materials, such as pulp, fuel, and packaging. Competitors have avoid such increases, and this may be deterring consumers, Altobello said.
“The most worrisome thing about the whole situation is that Procter has often gotten out-innovated by competitors like L’Oreal and Energizer,” Altobello said.
Despite P&G’s recent slowdown, steps have been taken to improve the forecasts. The company said it plans to reallocate resources toward larger and more profitable markets, and place greater emphasis on innovation and collaboration across its businesses. In addition, Altobello said, the consumer products company has signed off on a $10 billion restructuring plan.
It will take time before the changes, which include the elimination of 5,700 jobs by the end of fiscal 2013, affect P&G share prices, however. Altobello predicts that P&G’s 3.5 percent dividend yield will help preserve the stock’s appeal.
“Our view is that you probably will see some multiple contraction. Earnings growth as they said today is going to be minimal next year,” Altobello said. “The thing that will probably keep the stock afloat here is the dividend yield, as investors are looking for safety and income. Procter does as least serve part of that role.”
Even with the high dividend yield, there may be better places to investin the consumer products sector. Unilever, for example, is only a couple dollars off its 52-week high, and it offers a higher dividend than P&G at 3.8 percent.
“Our favorite name right now in the space is Church & Dwight,” Altobello told CNBC. “It’s not cheap, but this is a name that has executed extremely well, it’s mostly North American and it has also got a pretty value-oriented portfolio which benefits from trade down.”
P&G is expected to give an earnings guidance update on Aug. 3 when it reports its fiscal 2012 results.
—By CNBC.com’s Madeline Laskoski
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Joseph Altobello does not own shares of Procter & Gamble.