Five Things I Learned From Reading The Procter & Gamble Company (PG)’s Annual Report

The key to P&G’s future is maintaining the quality of its brands, and the most effective way to do that is through advertising. I suspect consumers will be more responsive to advertising when the economy picks up and employment growth returns, but the current trend isn’t encouraging.

4. There’s a lot of variance in margins among its internal divisions.
The Procter & Gamble Company (NYSE:PG) splits its business up into five divisions: beauty, grooming, health care, fabric care, and baby care.

I assumed all would have roughly similar margins, given the common denominator of “premium household goods.” But there’s actually quite a bit of variance, with grooming pulling in nearly double the margin of beauty:

Most of the outperformance in grooming can likely be explained by Gillette’s massive market share. “Our global blades and razors market share is approximately 70%,” the annual report says.

5. Two sentences explain a large part of why the company has made a great investment.
Procter & Gamble has produced an average annual return of 12.14% per year since 1968. This is largely thanks to the pricing power of its brands, but two sentences in its annual report also explain part of the gain:

Our first discretionary use of cash is dividend payments … [2012] is the 56th consecutive year that our dividend has increased. We have paid a dividend in every year since our incorporation in 1890.

Some companies are run for the benefit of management. Others will move mountains to take care of outside shareholders. P&G is the latter, and it shows.

The article 5 Things I Learned From Reading Procter & Gamble’s Annual Report originally appeared on Fool.com is written by Morgan Housel.

Fool contributor Morgan Housel owns shares of Procter & Gamble. The Motley Fool recommends Coca-Cola, Costco Wholesale, and Procter & Gamble. The Motley Fool owns shares of Costco Wholesale.

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