P&G is looking to improve results in developed markets, while also turning to the developing nations for future growth. This involves a focus on its 40-largest and most profitable businesses, most of which are already deployed in developed markets. These businesses also happen to account for about 50% of sales and 70% of operating profit. Other initiatives include the focus on its 20-largest innovations, such as Tide Pods, Always Radiance, Bounty Trap & Lock and Bounty Unstoppables, which includes diffusing these products in more markets.
Other plans include improving net manufacturing productivity by 5% annually, which is expected to generate $10 billion in cost reductions by the end of fiscal 2016. The details include a workforce reduction of 5,700 by the end of fiscal 2013, and then a further reduction of non-manufacturing jobs by an additional 2% to 4% per year from fiscal 2014 through 2016.
- P&G is also able to generate impressive free cash flow. During fiscal 2012, P&G generated some $9.3 billion in free cash flow, which represented 90% cash flow productivity. Meanwhile, for fiscal 2011, cash flow productivity was only 84%.
- P&G has consistently increased its dividend. The dividend increase of 7% in April 2012 was the 56th consecutive year for a dividend hike.
- The company also repurchased shares worth $7 billion in fiscal 2011 and $4 billion in fiscal 2012. In fiscal 2013, P&G plans to repurchase shares worth $5 billion to $6 billion, higher than prior expectations of $4 billion to $6 billion.
Other notable consumer-products companies include Johnson & Johnson and Colgate-Palmolive . Johnson & Johnson managed to beat expectations, with EPS coming in at $1.44 per share and 5.1% above the year ago earnings of $1.37 per share. Johnson & Johnson engages in research and development, manufacture and sale of a various products in the healthcare field.
Yet Colgate has produced relatively unimpressive results over the past four quarters, having either met or only marginally beat earnings over the last four quarters compared to P&G, which has beat EPS by at least 3% over the same quarter. It is promising that analysts expect the company to grow EPS by an annualized 9.6% over the next five years.
The hedge fund trade
Going into 2013, P&G had impressive hedge fund interest, with 56 hedge funds long the stock. These include notable billionaire hedge fund owners, namely Warren Buffett of Berkshire Hathaway (check out Buffett's high upside picks), with approximately a $3.6 billion position and making up 4.8% of its total 13F portfolio. The second-largest stake was held by Bill Ackman of Pershing Square with a $1.9 billion position and 20.7% of its 13F portfolio invested in the stock.