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Proctor & Gamble’s Stock Performance since Lafley’s Return

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Understanding P&G’s stock performance

The Procter & Gamble Company, or P&G (PG), is one of the leading consumer staples stocks in the world. It operates five business segments with famous household products including Tide, Olay, Pampers, Pantene, and Crest.

Since former CEO A.G. Lafley’s return, the company has undergone major restructuring to improve sales and profitability. P&G’s stock price touched a record high of $93.46 on December 26, 2014. The prime reason for the increase was the announcement of the sale of the Duracell battery business to Warren Buffett’s Berkshire Hathaway (BRK-B).

Since January 1, 2015, P&G’s stock price has fallen by over 10%. The stronger dollar is mainly to blame. It reduced reported sales from overseas. Also, the company made lower-than-expected earnings in the Beauty segment.

Rumors of P&G’s beauty brands divestitures also had an impact on its stock price. The stock rose by 3.5%, from $78.12 on June 15, 2015, to $80.82 on June 18, 2015. You can learn more about these divestitures in Part 18 of this series.

P&G’s return on equity, or ROE, in 3Q15 was 13.6%, the lowest ROE of its peers. Estee Lauder (EL) and Kimberly-Clark (KMB) had ROEs of 31.7% and 59.9%, respectively.

Underperforming beauty and grooming segments lost market share to competitors Unilever (UL) and L’Oréal (LRLCY) (OR-PA). This caused profitability to suffer, as well as returns. Also, unfavorable foreign exchange headwinds have led to lower returns due to their impact on overseas revenues.

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Consumer staples stock

Procter & Gamble is a megacap stock with a market cap of over $215.3 billion.[2. Updated as of June 27, 2015] It’s a component of the S&P 500 ETF Trust (SPY) and the iShare Core S&P 500 ETF (IVV), making up 1.2% of each.

Combined, consumer staple companies P&G and its peers, KMB and Colgate-Palmolive (CL), constitute ~17.3%[3. ETF portfolio weights as of June 27, 2015] of the Consumer Staples Select Sector SPDR EFT (XLP).

Future stock price drivers

Economic jitters in many emerging markets, including Russia, Brazil, and China, as well as US dollar concerns, might have an impact on P&G’s stock price in the future.

P&G aims to strengthen its more profitable segments such as Fabric Care and Home Care and Baby, Feminine and Family Care. P&G’s focus remains new product initiatives for Beauty care. For example, it wants to turn Olay and Pantene around and get them growing again in critical markets. Aside from divesting non-core brands, P&G is planning to close some of its distribution centers to revive stock price and profitability.

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