In Focus

Unscrambling Procter & Gamble (NYSE:PG)

Running P&G through the Chicks' Dozen
by Chick Megan

One Sunny D, I decided I'd put some Bounce and Joy back into my marriage and Pamper my husband. I threw on some clothing that would show off my Physique and make Sure his attention was focused anywhere but my Head and Shoulders. He stepped out of the shower, Mr. Clean, and was instantly in on my Secret. In a Jif, in walked the kids shouting "Olay!" full of Cheer and Zest, putting a Downy, er, downer on the whole afternoon. And after the days exhausting events, as the Febreze blew threw the window and the Tide began to change, we grinned at the two of them, Charmin' the pants on both of us. Kids may change the Scope of things, but at the end of the day, you Always feel your job here on earth is Crisco Clear: Luv-ing them, Safeguarding them, and knowing they are the true Bounty of life.

Okay, how corny was that? Consider it a lesson; first and foremost, but also consider it part and parcel of Chicks Dozen Numero Uno:

1. Buy What You Know
Heard of any of those bold-faced items listed in my little fairy-tale (which is really reality)? I'll bet you have. Those are only some of Procter & Gambles products; many of them top sellers.

2. Keep It Simple Sistah
Let's see we've got food, paper goods, feminine products, cosmetics, shampoos, coffee, snacks, toothpaste, etc. Some are necessities, no doubt. Some are luxuries. Either way, my four year old will explain them to you if you have questions. Just let me know.

3. Industry
Procter & Gamble is considered a personal and household products company (consumer/non-cyclical). As I mentioned in the previous criteria, some of their items are necessities. (Oh yeah, I should mention that some "necessities" might not really be considered such by some. For example, Webster's includes in their actual definition of the word necessity, "the power of natural law that cannot be other than it is. "So would Pringles be considered a necessity? Perhaps not. Folgers coffee? Maybe. Tampax? Absolutely. Get it?) So will this industry continue to thrive? In my opinion, yes. Thank goodness.

4. Leader in its Field
Check this out. P&G is listed #23 in Fortune 500, #27 in Hoovers 500, and #1, Head Honcho, the Big Cheese, in Marketguide's top 50 companies listed in descending market capitalization.

5. Repeat Profitability
Pretty much all of P&G's products are ones you will need to replace within a month's time (unless your husband is a frequent traveler and you put off things like make-up, cleaning and laundry until the day he returns... can you imagine? Who does that?). So the return business is there.  

The following numbers are taken from Marketguide.com: Income Statement and Balance Sheet.

6. Gross Margins

(Sales - Cost of Goods Sold) / Sales

(10,182 - 5417) / 10,182 = 47%

Not bad. We like 'em around 50%, this falls just short.

7. Net Margins

Net Income / Sales

1,194 / 10,182 = 11.7%

This is great! We like at least 8%!

8. Cash V. Long Term Debt

Cash / Long Term Debt

3556 / 10061 = .35 x

This is one of those funky blue-chip companies, techies. That means they've got plants and lots of expensive warehouses, etc. They'll never be debt-free, so I am not sure we can hold this against them. We like a lot of cash, at least as much cash as they have long term debt. But let's go figure their Flow Ratio before we panic. How they handle their cash flow is equally as important!

9. Flow Ratio

(Current Assets - Cash)* / (Current Liabilities - Short Term Debt)

(12,876 - 3556) / 11,059 - 0 = .84

Excellent! We pray for good Flowies, which often times means great management. This one fits the bill.

10. Increasing Growth

(Sales 12/00 - Sales 9/00) / Sales 12/00 x 100

(10,182 - 9,969) /10,182 x 100 = 2.09%

Again, moving in the right direction.

11. Strong Management & Operating History
Procter & Gamble has been around since the 1800's... longevity must count for something! In January, I talked a bit about P&G and whether or not they were worth the gamble. I touched on John Pepper, the beloved Chairman, and how he was such an important part of the puzzle for this company. The other man, Alan G. Lafley, sometimes referred to as "A.G.", is also a Max Factor for the company. Many felt that his stepping into the CEO role after a questionable performance by former CEO Durk Jager would make investors happy. Although Jager was integral in establishing overseas business, it was widely thought to be counterproductive in the long run. Alan Lafley, described as "the perfect guy to pick up the ball" and as focused, strategic, and an incredible listener, has loyalty behind him as well as the desire to get back to basics and refocus on the bigger, older products for which P&G are most recognized. Back to core business they go, with a trail of happy stockholders behind them. As the rest of the market teeters and totters through the chaos, this solid old-timer keeps coming out practically un-frayed.

12. Buy on Sale
52 Week High:89.81

52-Week Low:52.75

Current $: 68.25

So basically, when most people are resorting to Nyquil-esque tactics to get to sleep at night, the folks at P&G are breathing as though they've just had a Vicks rubdown.Again the question is whether or not P&G is the worth the gamble.Just looking at what the rest of the market is up to these days (or down to), I am left with only one word.