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Tuesday, August 08, 2006

Procter & Gamble Kicks It

Stocks: (PG)(UN)(CL)

Not only did P &G move into high earnings gear last week, but based on Unilever’s poor showing, it may be that P&G is eating someone else’s lunch.

P &G’s sales for the last quarter rose 8% without accounting for its acquisition of Gillette. With that thrown in, revenue rose 25% to almost $18 billion. Operating income was up 37% to nearly $2 billion. The company forecast earnings growth for the next fiscal at between 12% and 14%.

All of this is quite a comeback for the consumer goods company. Wall St. lost faith after the previous earnings release, driving the company’s stock to $52.75 in June from $62.50 in March.

Weaknesses in some of the businesses acquired in the Gillette deal are still holding the PG stock down. It may be another year before it is clear that putting the two companies together was a nearly complete success.

The other concern about PG is that its multiple is starting to look high. PG’s market cap is about $195 billion. Its annual sales run about $65 billion. Colgate, which is much smaller, has a similar multiple with $11.5 billion in sales and a market cap of $30 billion.
Unilever has sales of about $50 billion per annum and a market cap of $40 billion. There are balance sheet issues that affect the ratios, but PG is still high.

With its valuation on the upper end of the scale, and growth at a steady, but not spectacular rate, PG’s shares may not rise above $60 again for awhile.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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