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Why Are Italian Authorities Investigating Procter & Gamble?

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Price movement 

Procter & Gamble (PG) has a market cap of $228.6 billion. It fell by 0.48% to close at $85.03 per share on July 6, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 3.1%, 2.7%, and 8.9%, respectively, on the same day.

PG is trading 2.1% above its 20-day moving average, 3.7% above its 50-day moving average, and 8.3% above its 200-day moving average.

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Related ETF and peers

The Consumer Staples Select Sector SPDR ETF (XLP) invests 11.4% of its holdings in PG. The ETF tracks a market-cap-weighted index of consumer staples stocks drawn from the S&P 500. The YTD price movement of XLP was 10.7% on July 6.

The iShares Russell 3000 ETF (IWV) invests 1.1% of its holdings in PG. The ETF tracks a cap-weighted index that measures the investable US equities market, covering the entire market-cap spectrum, including micro-caps.

The market caps of PG’s competitors are as follows:

  • Johnson & Johnson (JNJ): $337.4 billion
  • Kimberly-Clark (KMB): $49.4 billion
  • Church & Dwight (CHD): $13.1 billion

Latest news on Procter & Gamble

In a press release on July 6, 2016, Bloomberg reported that “Procter & Gamble Co. is under investigation by Italian authorities looking into whether the world’s largest consumer-products maker routed revenue through Swiss and other units to avoid paying taxes in the country.”

It also noted, “The investigation, which is at an early stage, is focused on whether the company has used units such as Geneva-based Procter & Gamble International Operations SA to avoid taxes in Italy.”

It added, “Italy’s finance police started searching P&G offices in Rome in April.”

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Procter & Gamble’s performance in fiscal 3Q16

Procter & Gamble (PG) reported fiscal 3Q16 net sales of $15.8 billion, a fall of 6.9% compared to $16.9 billion in fiscal 3Q15. Following are fiscal 3Q16 sales for its various segments compared to fiscal 3Q15:

  • Beauty: fell 8%
  • Grooming: fell 10%
  • Healthcare: fell 7%
  • Fabric Care and Home Care: fell 4%
  • Baby, Feminine, and Family Care: fell 8%

The company’s cost of products sold as a percentage of net sales fell by 5.7%, and its operating income rose by 9.7% in fiscal 3Q16 compared to fiscal 3Q15.

The company’s net income and EPS (earnings per share) rose to $2.8 billion and $0.97, respectively, in fiscal 3Q16 compared to $2.2 billion and $0.75, respectively, in fiscal 3Q15.

Procter & Gamble’s cash and cash equivalents rose by 15.5%, and its inventories fell by 0.44% in fiscal 3Q16 compared to fiscal 4Q15. Its current ratio and debt-to-equity ratio rose to 1.1x and ~1.1x, respectively, in fiscal 3Q16, compared to 1.0x and ~1.1x, respectively, in fiscal 4Q15.

Projections

Procter & Gamble (PG) has made the following projections for fiscal 2016:

  • organic sales growth up to low single digits
  • high-single-digit decline in all-in sales, which includes a -6% to -7% impact from foreign exchange and a 2%–3% impact from the combined impact of the Venezuela deconsolidation and minor brand divestitures
  • 3%–6% decline in core EPS
  • all-in GAAP (generally accepted accounting principles) EPS growth of 46%–51%

In the next part, we’ll take a look at Fiat Chrysler Automobiles (FCAU).

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