Procter & Gamble: Key Takeaways From Investor Day 2022

The Procter & Gamble Firm (NYSE:PG) gives branded client packaged items worldwide. It operates by way of 5 segments: Magnificence; Grooming; Well being Care; Material & Dwelling Care; and Child, Female & Household Care.

Right this moment, we’re going to spotlight the important thing takeaways from the agency’s 2022 Investor Day, which passed off on the seventeenth of November. This Investor Day 2022 is type of a particular occasion as that is the primary investor day that the agency has held since 2018.

This 12 months, we have now already printed two articles on Searching for Alpha, score the corporate’s inventory as a “purchase” in each circumstances. In our first article, we have now highlighted the agency’s robust efficiency throughout instances of low client confidence, its loyal buyer base and its stable observe report of returning worth to shareholders as benefits. In our second article, we have now elaborated on how the demand for PG’s merchandise could develop within the close to future.

The goal of this text is to see, whether or not our beforehand developed thesis and our “purchase” score continues to be intact.

Investor Day 2022 highlights

1.) Development technique

The agency foresees fairly a change in its progress technique within the close to future. It has been announced that the agency is aiming for natural progress and the variety of acquisitions is more likely to be restricted.

The expansion technique of the agency is deliberate to be built-in, starting from the portfolio of merchandise to the organisational setup. The first areas of focus are provide chain, environmental sustainability, digital acumen and worker worth creation.

As P&G has acquired a lot of companies previously, together with Gillette in 2005 and the status model Tula Magnificence in 2022, we consider this can be a fairly substantial shift within the technique going ahead.

Many analysts have had a positive opinion on the modifications after the presentation. Financial institution of America analysts have acknowledged:

[…] the group and technique modifications are working, as evidenced by 6% natural gross sales progress CAGR and broad enhancements throughout their 10 class segments.

Presently, BofA analysts have a $170 per share value goal.

Wells Fargo analysts have commented:

As for the inventory? We prefer it—in our view one of many few names within the Staples sector to supply upside to numbers, and potential to shift narrative […]

Nicely Fargo has a value goal of $155 per share.

Deutsche Financial institution analysts have been additionally happy by the presentation:

PG’s first Investor Day since 2018 reaffirmed the corporate’s strategic decisions over the previous a number of years, and underscored administration’s dedication to strengthening the execution of those decisions to ship “balanced progress” and worth creation within the years forward.

Productiveness

Initiatives targeted on productiveness enhancements are being deliberate and carried out from supplies by way of manufacturing to working capital investments.

Portfolio transformation

PG has gone by way of a big portfolio transformation within the current years, lowering their variety of manufacturers to 65 from 170 in 2017.

The selection of manufacturers has been determined based mostly on day by day use and efficiency.

Superiority

PG goals to develop market share and gross sales by attaining superiority. Not solely the prevalence of merchandise is supposed on this context, but additionally the prevalence of packaging, model communications, retail execution and buyer worth equation.

Constructive disruption

To realize the so-called constructive disruption, the corporate is aiming to enhance their provide chain and model constructing. Lean innovation, mixed with digitisation and knowledge analytics are enjoying an important position within the course of as nicely.

Group

Final, however not least, we have now to say the organisational modifications as nicely.

The agency is within the course of of making a targeted and agile group, with enterprise models together with: child, female and household care, magnificence, well being care, grooming and material and residential care.

Focus market have been additionally recognized and highlighted, together with: Canada, the USA, Europe, China and Japan.

2.) Headwinds

The agency has additionally given extra perception into the important thing headwinds that they must take care of.

We’ve additionally highlighted elevated commodity costs and freight prices as substantial headwinds in our earlier articles. Whereas commodity and freight headwinds are anticipated to stay excessive in 2023, they’re more likely to decline subsequent 12 months, as no dramatic enhance in oil and uncooked materials costs are foreseen within the close to future. Then again, the unfavourable FX surroundings is more likely to affect the agency’s monetary efficiency much more negatively within the close to future. The mixed unfavorable impact of those headwinds to the earnings are estimated to be $1.57 per share in 2023.

Different headwinds, which have been highlighted, however not quantified, are the inflationary strain, stock administration and the weak client confidence mixed with potential COVID lockdowns.

3.) Atmosphere

An increasing number of traders are paying a lot nearer consideration to the ESG initiatives of companies earlier than taking a place. Not solely traders, but additionally shoppers have gotten extra aware in regards to the merchandise they purchase.

In line with Kantar World Monitor 2022, the vast majority of folks requested mentioned that “defending nature is a particularly vital private worth” for them. 64% of the folks have additionally mentioned that they have been keen to pay extra for surroundings pleasant merchandise.

Due to this fact, we’re glad that PG is placing a big concentrate on their environmental efforts. This might additionally allow them to get entry to this $550+ billion market alternative.

These efforts embody, however usually are not restricted to:

• Creating merchandise that work utilizing chilly water
• Destining product formulation that assist scale back water use
• Cut back, reuse and recycle packaging
• Addressing gaps in waste administration methods

To recollect

P&G is aiming to restrict the variety of acquisitions and is aiming to develop organically. The enablers of this progress are: portfolio transformation, superiority, improved productiveness, constructive disruption and an agile and targeted organisation.

The principle macroeconomic headwinds hurting PG’s monetary efficiency are: elevated commodity and freight prices, unfavourable FX surroundings, weak client confidence and inflationary strain on the shoppers.

PG can also be paying extra consideration to environmental initiatives, which might allow the corporate to get a share of a $550+ billion market alternative.

We reiterate our “purchase” score.