A.G.Lafley is the right choice
According to Financial Times, $2 million would be Lafley’s base salary. He could also participate in a bonus program that could get him an additional 250% of his base salary. I think the most important thing that Lafley did for The Procter & Gamble Company (NYSE:PG) during his first tenure was the $57 billion acquisition of the market leader in the global men’s blades and razor market, Gillette. With the acquisition, Gillette could enter fast-growing markets including China and Japan, and Gillette could be the main driver of P&G’s overall growth. Actually, Warren Buffett had ended up owning P&G stock via this acquisition. Before the deal, Berkshire Hathaway Inc. (NYSE:BRK.B) was the largest shareholder of Gillette with around 96 million shares, or a 9% stake. Buffett commented that it was a “dream deal.” Indeed, because of Gillette, the grooming segment could enjoy the highest pre-tax operating margin of 28.7% in 2012.
Unilever expands Hindustan Unilever’s stake
Under the leadership of McDonald, The Procter & Gamble Company (NYSE:PG)’s operating performance has lagged its closest peer, Unilever plc (ADR) (NYSE:UL), especially in the emerging markets. While only around 40% of its total revenue was derived from the emerging markets, these accounted for around 55% of total Unilever plc (ADR) (NYSE:UL)’s revenue in 2012. Although more than half of the sales come from the emerging parts of the world, Unilever plc (ADR) (NYSE:UL) hasn’t stopped there. Recently, the company announced that it had raised its stake in Hindustan Unilever from $52.5% to 75%, with the total cost of $5.4 billion. With 1.3 billion in population in India, Hindustan Unilever has become one of the most important parts in Unilever’s global map. Unilever’s COO Harish Manwani pointed out that Unilever saw rural India, with 700 million people, as one of the most biggest opportunities for growth.
P&G could reach $125 per share
The Procter & Gamble Company (NYSE:PG), under Lafley, will accelerate a $10 billion cost-savings program. According to activist investor Bill Ackman, that cost-savings program would be completed in the middle of 2016, including $6 billion in COGS reduction, $1 billion in marketing efficiencies, $1 billion in overhead savings and $2 billion in operating leverage. After that, P&G’s earnings before interest and taxes (EBIT) could experience significant improvement, from 18.8% to 25%. With the EBIT margin of 4%, combined with 6% organic growth in sales, Ackman believed that EPS could be $6 in 2016. With a multiple of 20, P&G’s share price could reach $125.
The global leader in Oral Care
Another peer of both Unilever and P&G is Colgate-Palmolive Company (NYSE:CL). Although Colgate-Palmolive Company (NYSE:CL) also offers personal and home-care products, its biggest business is oral care. According to ACNielsen, Colgate is the world’s leader in the Oral Care business with many toothbrush and toothpaste brands including Colgate Total, Colgate Max Fresh and Colgate Optic White. Colgate-Palmolive’s revenue percentage from emerging markets was 50%, higher than P&G. The emerging markets comprise Latin America, Greater Asia/Africa and Central Europe. Colgate-Palmolive has paid uninterrupted dividends since 1895. In 2012, it paid out $1.22 per share in dividends, with the payout ratio of 47.4%. Colgate-Palmolive is trading at around $61.20 per share, with the total market cap of $57.10 billion. The market values Colgate-Palmolive Company (NYSE:CL) at 14 times enterprise value over EBITDA. The dividend yield is decent at 2.2%.
Unilever and The Procter & Gamble Company (NYSE:PG) are also favored by income investors because of their historically consistent dividend increases. Unilever and P&G offers investors a higher dividend yield at 3.3% and 3%, respectively. Unilever is trading at $42.10 per share, with the total market cap of $119.20 billion. The market values the company at around 12.2 times EV/EBITDA. P&G has a bit higher EV multiple. At $81.90 per share, P&G is worth more than $224.4 billion on the market. It is valued at 12.6 times EV/EBITDA.
My Foolish take
I am totally bullish about the return of former chief A.G.Lafley. In the near future under his leadership, The Procter & Gamble Company (NYSE:PG)’s operating performance could be improved significantly. With global market-leading positions and decent dividend yields, I think investors could hold all three companies mentioned above for their long-term income portfolios.
The article P&G Will Perform Well With A.G.Lafley originally appeared on Fool.com and is written by Anh Hoang.
Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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