EUR 850.00 For Business Accounts Only

Morningstar | PG Updated Star Rating from 31 Jan 2019

After Procter & Gamble's multiyear effort to cull around 100 brands from its mix (leaving it with 65), we think the firm is now poised to benefit from an enhanced focus on its core brands. Even though it slimmed down, we still think P&G carries clout with retailers, maintaining its scale edge. The 65 brands in its mix include 21 that generate $1 billion-$10 billion in annual sales and another 11 that account for $500 million-$1 billion in annual sales. With its vast resources to invest in its brands and by supplying products across multiple categories, we think trusted manufacturers like P&G are critical to both brick-and-mortar and e-commerce retailers.The one laggard in the mix remains grooming (10% of sales), which has fallen victim to intense competition from lower-price upstarts. Despite this, we think the firm is pursuing a sound strategic path to counter the pressures in this segment by recalibrating its pricing, investing in on-trend new products, and launching its own subscription-based sales model. In this context, P&G is launching a razor specifically geared to men with sensitive skin, which the firm claims affects 70% of males, and has suggested further launches will follow. As an example, Gary Coombe (president of global grooming) has said P&G isn't satisfied with the packaging and believes investments in this realm could also help stabilize its competitive position.But we don’t believe P&G is anchored to boosting its top-line at any cost, and surmise efforts to drive efficiencies (targeting $10 billion, a high-teens percent of costs) are prudent--aimed at reducing overhead, lowering material costs, and increasing manufacturing and marketing productivity. While inflationary and promotional pressures are unlikely to subside near term (in line with commentary from other consumer product operators), we think its stringent focus on costs stand to modestly boost gross margins (up 140 basis points relative to the past five years on average to nearly 51% by fiscal 2028) longer term and fuel R&D (including improved packaging) and marketing. We forecast the firm will allocate 3% of sales for R&D and 11% of sales for marketing each year over our forecast.