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The century-old store in the consumer chemicals industry! How does procter & gamble's performance look?
In the US stock market, there are many centuries-old stores, $Procter & Gamble (PG.US)$ is one of them. This consumer industry giant with nearly two centuries of history currently owns a series of globally renowned brands such as OLAY, SK-II, Tide, Crest, Head & Shoulders, Olay, Gillette, and more.
Generally speaking, a company that can survive for hundreds of years in intense market competition most likely has a very stable operation. Procter & Gamble is such a company with a main focus on stability, whether it's its stock price or performance, it is very resilient. Although its stock price has not seen any major surprises in recent years, it has generally kept pace with the S&P 500 Index.
On October 18, Procter & Gamble will release its Q1 earnings report for the 2025 fiscal year. Each time a company releases its earnings, it may also signal a good trading or investment opportunity. Prior to this, investors need to understand how to interpret its performance.
What key points should we pay attention to in Procter & Gamble's performance? As a traditional industry company with revenues in the tens of billions of dollars, Procter & Gamble has lost the momentum of rapid growth. The market may focus on its potential certainty as a centenarian store, so we can focus on 3 points: the stability of its performance, the stability of its profitability, and the stability of shareholder returns.
1. Performance stability
Firstly, Procter & Gamble's stable operation lies in the stability of its revenue and profit. As a consumer daily chemical giant with a very wide business scope, from its diversified brands and revenue sources, it can to a certain extent smooth out the fluctuations in its performance.
In terms of specific revenue composition, Procter & Gamble's business covers multiple sectors, including fabrics and home care, baby, female, and family care, beauty, and health care sectors. There is no single dominant sector in terms of revenue, the revenue distribution is relatively balanced, which also helps to diversify the risk of significant revenue fluctuations in any one sector.
Looking at the revenue trend, Procter & Gamble's revenue has experienced fluctuations since the 2011 fiscal year, with initial growth, followed by a decline, and then a return to growth, but overall the fluctuations are not significant. Starting from 2014, due to issues such as brand positioning, slow response to changes in the international market, and the impact of the Internet, Procter & Gamble experienced its darkest period of three consecutive years of accelerated revenue decline, with total revenue declining by over 20%.
However, after experiencing several years of pain, Procter & Gamble took measures such as streamlining its brand portfolio, increasing digital marketing efforts, and focusing on the high-end market. In the following years, it reversed the declining trend and returned to a growth trajectory, with its revenue returning to its peak level in the 2024 fiscal year. From continuous decline to recovery, to some extent, it demonstrates the resilience in Procter & Gamble's operation and the stability in performance.
In terms of profitability, Procter & Gamble's net income is often significantly affected by special expenses and other one-time factors, resulting in large fluctuations. We should focus on observing the trend of operating profit. Starting from the 2011 fiscal year, Procter & Gamble's operating profit also experienced continuous decline, but the maximum decline did not exceed 10%, and it has shown an overall recovery in recent years. In the 2024 fiscal year, the operating profit was approximately $19.89 billion, a growth of about 26% compared to the 2011 fiscal year level. Overall, although the growth is not substantial, it is also characterized by stability.
Overall, looking at Procter & Gamble's historical performance trend, although it may not be astonishing in absolute terms, it does maintain a certain level of stability and resilience against external challenges. In the future performance, fluctuations in Procter & Gamble's performance are inevitable. We should focus on observing the extent and stability of these fluctuations. If significant consecutive declines occur, it may indicate a considerable discount in its long-term investment value.
2. Stability of Profitability
The second point of Procter & Gamble's stable operation is the stability of its profitability. We mainly look at three indicators: gross margin, operating margin, and ROE level.
Looking at the gross margin, Procter & Gamble's gross margin was 50.6% in the 2011 fiscal year, with several minor increases and decreases thereafter. In the 2024 fiscal year, it was about 51.4%, comparable to over a decade ago, showing very stable performance.
Looking at the operating margin, Procter & Gamble was around 19.2% in the 2011 fiscal year, with a slight decline in the following two years, but then maintained an upward trend, reaching about 23.7% in the 2024 fiscal year, an overall increase of 4.5 percentage points, demonstrating very stable performance.
Procter & Gamble's increase in operating margin is largely due to the optimization of expense ratio. Procter & Gamble's sales and administrative expense ratio decreased from 31.5% in the 2011 fiscal year to 27.7% in the 2024 fiscal year, a nearly 4 percentage point decrease, subsequently driving the growth of operating profit.
From the perspective of ROE, Procter & Gamble's overall ROE level has seen a significant increase, rising from 18.3% in the 2011 fiscal year to 30.7% in the 2024 fiscal year. Except for abnormal decreases in net income in the 2015 and 2019 fiscal years due to one-time expenses, Procter & Gamble's ROE in other fiscal years has been above 15%.
Charlie Munger once said: Long-term stock returns are consistent with a company's ROE. In other words, companies with consistently high ROE levels may bring higher long-term returns to investors.
Procter & Gamble's performance in terms of growth may not be outstanding, but its stock price performance has been able to keep up with the S&P 500 index, largely attributable to its continuously improving ROE level. Therefore, in future performance, we need to pay attention to whether Procter & Gamble's various profit indicators can maintain stability in trends, especially focusing on whether its ROE can remain at a high level.
3. Stability of shareholder returns
In the US stock market, many companies have mediocre performance growth but are generous in returning shareholders, mainly including dividends and repurchases. Procter & Gamble is a typical representative.
From the 2011 fiscal year to the 2024 fiscal year, although Procter & Gamble's net income has fluctuated, the total amount of repurchases and dividends each year has been above $10 billion, reaching nearly $20 billion at its peak.
During this 14-year period, Procter & Gamble's total repurchases and dividends amount to approximately $196.6 billion, with a net income of about $160.7 billion during the same period. The total shareholder return even exceeds the net income level during the same period, indicating the company's relentless efforts in rewarding shareholders.
Through repurchases and dividends, the excess cash of procter & gamble is consumed, keeping its shareholders' equity relatively stable at a lower level, thus boosting the company's ROE level, which is a core reason for maintaining a high ROE for the company.
In future earnings reports, we can continue to focus on whether procter & gamble's shareholder returns can remain stable at the current high level, thereby maintaining a high ROE level and attracting the attention of some investors.
Seeing this, you may have some new insights on how to interpret procter & gamble's performance. It is worth mentioning that for many star companies, each performance release may represent a rare trading opportunity for different types of investors.
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Conversely, if investors believe that the latest performance of a certain company will not be optimistic and will bring pressure on the short-term stock price, investors may consider short selling, which can be done by considering margin selling or buying put options.
Of course, if investors feel uncertain about the bullish or bearish direction of a company's performance, but the stock price may experience significant upward or downward volatility after the performance announcement, investors may consider capturing potential opportunities by trading the volatility of its stock price, considering employing a straddle strategy by purchasing both call and put options simultaneously.
Finally, to summarize,
For procter & gamble's performance, we can focus on its stability in three aspects: performance, profitability, and shareholder returns.
When it comes to the stability of Procter & Gamble's performance, we can observe whether its revenue and profit fluctuate within a small range. If there is a significant decline, we may need to remain vigilant.
In terms of the stability of its profitability, we can look at its gross margin, operating profit margin, and ROE levels, especially focusing on whether its ROE can remain at a higher level.
For the stability of its shareholder returns, we can observe whether the total amount of repurchases and dividends can maintain a higher level consistently.
Every time a company releases its earnings, it may bring potential trading opportunities. Investors can consider suitable types of trades based on their individual risk tolerance.