The World’s Largest & Most Profitable Consumer Products Company in the World
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As 2013 begins, I would like to pinpoint on the world’s largest and most profitable consumer products company in the world, with operations in more than 180 countries, The Procter & Gamble Company (NYSE: PG).
The Business:
Warren Buffett once said, “Never invest in a business you can’t understand.” This not only allows the investor to purchase a company with conviction, however also allows them to spot trends blind to unfamiliar eyes. With this in mind, investors in any company should fully understand the business model of the company. P&G is the world’s largest and most profitable consumer products company in the world, with operations in more than 180 countries. Based on market capitalization, the company is valued at $210.31 billion. In the fourth quarter of the 2012 year, P&G possessed a profit margin of 18.30%.
Strengths:
- Incredibly Strong Product Portfolio: P&G possesses one of the strongest product portfolios in the world, with 25 billion dollar brands; with this incredibly strong product portfolio comes a greater level of security and predictability for investors
- Historic Revenue Growth: In 2003, P&G reported revenue of $43.37 billion; in 2012, the company announced revenue of $83.68 billion, representing year over year annual growth of 7.58%, a strong trend which is highly anticipated to sustain into the future with projections placing 2017 revenue at $103.80 billion (this growth has been a result of consistent product innovation and several major acquisitions)
- Steady Assets Growth: Assets of the company have grown from $43.70 billion in 2003 to $132.24 billion in 2012, a major financial strength of the company
- Dividend: Currently, P&G pays out quarterly dividends of $0.56, which annualized puts the dividend as yielding 2.92%, a major strength for long-term investors
- Institutional Vote of Confidence: 58% of shares outstanding are held by institutional investors, representing over $120 billion in investment, displaying the confidence some of largest investors in the world have in the company and its future
- Strong Cash Flow: In 2012, the company generated $12.11 billion in cash flow, representing the financial strength of the company’s business model
- Margin Expansion: Over the past decade, P&G’s profit margin has expanded from 12.50% to the current 18.30% level, an extremely advantageous trend of the company
- Diversified & Established Business: P&G sells a broad array of products in more than 180 countries, with more than $83 billion in revenue in 2012; with this diversified and established business comes a greater level of predictability and security for investors
- Relatively Low Volatility: At the moment, the company carries a beta ratio of 0.46, representing a company trading with considerably less volatility than the overall market, a strength for long-term investors
Weaknesses:
- Net Debt: P&G’s $6.6 billion in cash and cash equivalents is outweighed by its $46 billion debt load, resulting in a net debt of roughly $39 billion, $14.37 per share, a minor financial weakness of the company
Opportunities:
- Dividend Growth: Since implementing their dividend program in 1891, P&G has consistently raised their dividend payouts
- Market Share in Fabric Care: P&G’s market share of the global fabric care market (2008: 31.1% currently: 30.4%) market share of the global surface, dish, and air care market (2008: 20.0% currently 20.1%); any gain in market share could fuel growth and sales
- Market Share in Beauty: P&G’s market share of the global beauty market (2008: 15.4% currently: 13.2%); any gain in market share could fuel growth and sales
- Market Share in Baby Care: P&G’s market share of the global baby diapers market (2008: 46.9% currently: 43.5%) market share in the global tissue production market (2008: 16.8% currently: 19.7%); any gain in market share could fuel growth and sales
- Market Share in Health Care: P&G’s market share of the global health care product market (2008: 10.1% currently: 10.0%); any gain in market share could fuel growth and sales
- Market Share in Grooming: P&G’s market share of the global grooming market (2008: 46.2% currently: 46.6%); any gain in market share could fuel growth and sales
- Growth in Fabric Care, Beauty, Baby Care, Health Care, and Grooming Markets: All of these essential markets have grown considerably since 2008, fueled primarily by increasing prosperity in emerging markets such as Latin America and Asia, and with acceleration in all of these industries anticipated P&G is presented the opportunity to meet growing demand and fuel growth
- Acquisitions: The company possesses a long history of acquiring quality brand names from other companies and utilizing their established distribution network to increase sales of the product and fuel growth; further acquisitions could add to the company’s large portfolio of brands and increase revenue
- Brazil, Russia, India, and China: Since 2002, Brazil has grown with a compound annual growth rate of 23%, Russia with a rate of 25%, India with a rate of 27%, and China with a rate of 17%; and with further growth in these core markets anticipated the company is presented the opportunity to fuel overall growth
Threats:
- Rising Material Prices: Any rise in the price of the materials the company utilizes to manufacture its products could squeeze margins and threaten business
Competitors:
Major publicly traded competitors of P&G include Church & Dwight Company Incorporated (NYSE: CHD), Colgate-Palmolive Company (NYSE: CL), The Clorox Company (NYSE: CLX), and Avon Products Incorporated (NYSE: AVP). All of these companies operate in the consumer staples industry and compete directly with Procter & Gamble. Church & Dwight is valued at $8.59 billion, pays out a dividend yielding 1.82%, and carries a price to earnings ratio of 25.09. Colgate is valued at $53.85 billion, pays out a dividend yielding 2.18%, and carries a price to earnings ratio of 22.13. Clorox is valued at $10.89 billion, pays out a dividend yielding 3.08%, and carries a price to earnings ratio of 19.41. Avon is valued at $8.63 billion, pays out a dividend yielding 1.20%, and carries a negative price to earnings ratio.
The Foolish Bottom Line:
Financially, P&G is extremely solid. The company possesses stable revenue growth, one of the strongest product portfolios in the world, and a growing dividend. Looking forward, the company is likely to derive fast-paced growth from rapidly expanding industries and emerging markets. All in all, Procter & Gamble is one of the strongest businesses in the world, earns five out of five stars, and will provide investors with solid and stable returns for decades to come.
makinmoney2424 has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!
