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Why Did Procter & Gamble File a Lawsuit against Vi-Jon?

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Price movement

Procter & Gamble (PG) has a market cap of $232.2 billion and fell 0.05% to close at $86.80 per share on October 31, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 3.2%, -2.5%, and 12.9%, respectively, on the same day.

PG is now trading 0.33% below its 20-day moving average, 0.45% below its 50-day moving average, and 5.0% above its 200-day moving average.

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Related ETF and peers

The Consumer Staples Select Sector SPDR Fund (XLP) invests 11.7% 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 6.4% on October 31.

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

  • Colgate-Palmolive (CL)—$63.7 billion
  • Kimberly-Clark (KMB)—$41.0 billion
  • Clorox (CLX)—$15.6 billion

Latest news on PG

In a press release on October 31, 2016, Procter & Gamble reported that it had “filed a lawsuit in US District Court for the Middle District of Tennessee against Vi-Jon, a manufacturer of personal care products.”

The press release specifies that the lawsuit would focus on “Vi-Jon’s store brand dandruff shampoos, which are sold in major retail outlets throughout the US.” The complaint “alleges that Vi-Jon bottles sold in Dollar General, CVS, and Kroger mimic the shape, colors, and label of Head & Shoulders, the leader of the dandruff category and the world’s #1 shampoo, in a way that infringes its trade dress.”

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Procter & Gamble’s performance in fiscal 1Q17

Procter & Gamble’s net sales remained flat at $16.5 billion in fiscal 1Q17, with a 2% rise in volumes being offset by a -3% impact from foreign exchange fluctuations.

The company’s organic sales, which exclude the impact of acquisitions and divestitures and currency fluctuations, grew 3%, primarily due to organic volume. The company’s portfolio transformation strategies and the impact of lower finished product sales to its Venezuelan operations negatively impacted the fiscal 1Q17 organic sales growth by one percentage point.

Procter & Gamble’s 1Q17 adjusted EPS rose 5.1% on a YoY (year-over-year) basis due to improved margins and a reduction in the tax rate. In its 1Q17 conference call, Procter & Gamble Chief Financial Officer Jon R. Moeller indicated that the adoption of new accounting standards for share-based compensation was of one of the reasons for the lower tax rate.

The adoption of the new standards had a favorable impact of $0.04 per share on the fiscal 1Q17 adjusted EPS. Adverse currency fluctuation had a seven-percentage points negative impact on Procter & Gamble’s 1Q17 earnings.

Gross profit margin

The company’s gross profit margin rose to 51.0% in 1Q17 from 50.7% in fiscal 1Q16. The company’s core gross margin expanded by 50 basis points driven by productivity efforts and leverage on volume growth. However, this rise was offset by unfavorable product mix, investments in capacity and innovation, and higher commodity costs.

In fiscal 1Q17, Procter & Gamble’s operating margin remained flat at 22.8% compared to the prior year period. The core operating margin rose by 20 basis points helped by the company’s productivity improvements.

Now let’s discuss Constellation Brands (STZ).

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