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Analyzing Pershing Square's positions in 3Q 2013

Part 5
Analyzing Pershing Square's positions in 3Q 2013 (Part 5 of 6)

Why did Ackman trim Pershing Square’s Procter & Gamble stake?

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Pershing Square Capital Management is a New York–based activist hedge fund founded and run by Bill Ackman. Ackman started the firm in 2004 with $54 million from his personal funds and from his former business partner, Leucadia National. News reports in October claimed that the fund has seen its assets under management decline by $1.2 billion from $12.4 billion in March, mainly due to setbacks in investments made in J.C. Penney Co. (JCP) and a large bet against Herbalife Ltd. (HLF).

In this six part series, we’ll go through some of the main positions Pershing Square Capital Management LP traded this past quarter.

The fund bought no new positions in 3Q 2013. It added to its positions in Air Products & Chemicals (APD), and reduced its positions in General Growth Properties, (GGP) Canadian Pacific Railway (CP), and Procter & Gamble (PG). It sold its positions in J.C. Penney (JCP).

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

Why sell Procter & Gamble Co. (PG)?

Pershing Square Capital reduced its position in Procter & Gamble Co. to 20.0% in 3Q 2013. Ackman had purchased shares in the company in 2Q 2012. Although CEO Bob McDonald had initiated a $10 billion cost-cutting program to improve margins, sales growth remained sluggish in a challenging business environment. Pressured by Ackman, P&G replaced McDonald in May 2013 with former CEO A.G. Lafley.

The company reported 1Q 2014 diluted net earnings per share of $1.04, up 8% versus the prior year. Net sales were $21.2 billion, an increase of 2%, including a -2 percentage point impact from foreign exchange. Organic sales grew 4% for the quarter. The company expects strong earnings growth in the second half of its fiscal year behind continued top-line growth, productivity savings that will continue to build throughout the year, and more favorable foreign exchange base period comparisons.

Earnings and revenue for the quarter met analyst estimates, but they still expect further improvement in margins. The company faces challenges by way of currency headwinds, high competition, rising commodity costs, and the consumer spending environment in the U.S.

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Pershing Square Capital uses fundamental analysis with a value orientation employing extensive research and thorough due diligence in its decision-making process. It uses a unique mix of value investing and an activist approach in sifting through and identifying investments.

Founder Bill Ackman has a Bachelor of Arts degree magna cum laude from Harvard College in 1988 and an MBA from Harvard Business School in 1992.

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