Will the Procter & Gamble Co (NYSE: PG) Finally Embrace E-Commerce?

January 19, 2018, 11:55 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

The Procter & Gamble Co (NYSE: PG) performed poorly last year given that the year was marked by weak sales growth, low volumes and declining market share. The company’s shareholders were very dissatisfied with the management’s performance, which led to the election of Nelson Peltz to the company’s board.

Article Summary

P&G had a terrible year in 2017 characterized by slowing sales growth.

The company’s revenues have been declining over the past few years.

The company should embrace e-commerce in order to remain profitable.

Here’s the trading report on PG.

The consumer goods company reported 1% sales growth in the last quarter, which was lower than the previous quarter’s 2% growth. Much of the company’s sales growth was generated from slight improvements in product volumes underpinned by massive cost-cutting measures, which boosted the company’s overall revenue growth.

The company focused heavily on price growth as a key mechanism for generating higher revenues, but there is a limit to the levels to which the company can raise prices, while still retaining its customers. Most consumers are not willing to pay very high prices for most of their staples, which is what led to the slowdown in pricing growth in Q1.

PG performed much poorly than its major competitors such as Unilever Plc (NYSE: UL) and Kimberly Clark Corp (NYSE: KMB) last year and it remains to be seen whether the company shall report improved performance in Q2. It is evident that P&G is facing fundamental challenges that go way deeper than just improving quarterly sales growth numbers given that the company’s overall revenues have been declining for the past few years.

The main problem facing P&G relates to its business model given that the company’s management has refused to focus on online sales channels, yet it is small online retailers such as Bevel, Honest Company and Dollar Shave Club, which are stealing the company’s market share. Given that the company’s management is still focused on its traditional business model of selling high-margin products through shelf-space at major retail stores, the company’s fortunes are unlikely to change.

I hope that Nelson Peltz can help the company’s management shift to selling through online channels in order to compete effectively with smaller companies. Until this happens, it is highly unlikely that P&G will reclaim its former glory.

Finally, it is not enough to know that a stock is likely to head higher, or lower this year. As an investor or trader, it is important to time your entry and exit points accurately in order to minimize risk and maximize your profit potential.

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