Thursday, April 10, 2014

Procter & Gamble: Dog Days are Over?

Procter & Gamble (PG) unloaded most of its pet care business on Mars Inc today, although the deal has done little to lift Procter & Gamble’s shares today.

Associated Press

Shares of Procter & Gamble have gained 0.1% to $81.44 at 2:06 p.m. today, while Unilever (UL) has risen 0.6% to $43.96, Colgate-Palmolive (CL) is little changed at $65.65 and Kimberly-Clark (KMB) has advanced 0.5% to $111.31.

Citigroup’s explains why Procter & Gamble’s decision (Hint: It has little to do with the financials):

[Procter & Gamble] said that the one-time EPS impact from the divestiture and ongoing EPS dilution are not expected to have a material impact on FY15 results. [Procter & Gamble] said that net cash proceeds from the transaction would be used for general corporate purposes (let's hope that means more share buyback!).

But Much Important Psychologically — Since his return to [Procter & Gamble] last summer, CEO A.G. Lafley has stated repeatedly that he believes there is up to 10% of [Procter & Gamble's] portfolio that could/should be divested due to chronic underperformance. Thus far, [Procter & Gamble's] divestitures have been immaterial (bleach and a plan to sell MDVip). We are happy that [Procter & Gamble] is taking decisive action to exit pet food, given the drag it has represented on [Procter & Gamble's] business over the years (probably more of a distraction to mgmt as opposed to a real financial cost, but a drag nonetheless). We hope there are more similar divestitures to come.

Shares of Procter & Gamble are little changed this year, while Unilever has gained 6.7%, Colgate-Palmolive has ticked up 0.6% and Kimberly-Clark has gained 6.5%.

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