Procter & Gamble Makes Money While Making a Difference
Sep 2nd 2012 5:09PM
Updated Sep 2nd 2012 5:10PM
Consumers are becoming more and more socially conscious, and they want the goods and services they use to measure up. It doesn't take much. A simple action that costs a company very little or nothing at all can make a real difference in the mind of the consumer and the company's bottom line.
Procter & Gamble (NYS: PG) might not be the first company you think of when you hear the words "corporate social responsibility," but the company has a better track record in that area than you might imagine. Let's dive deep into the consumer-goods giant, evaluate its socially conscious policies and practices, and take a hard look at the numbers. We'll analyze the company in terms of its performance as a socially responsible enterprise, as a for-profit business, and as an investment.
Plastic made from plants and other nifty innovations
"Trusted every day" is P&G's tagline, and it's a pretty appropriate one. The company makes so many of the household-care products people use every day, it's a bit staggering. As such, when a company like P&G decides it's ready to go socially conscious, it's worth noting, as the knock-on effects can be significant.
Like so many companies these days, P&G devotes a sizable chunk of its Web property to its sustainable practices, which the company defines broadly as both environmental responsibility and social responsibility. Here are some of the highlights:
- The company releases annual sustainability reports, which include a defined set of goals along with a report card detailing whether or not they've been met. The 2011 report was the company's 13thso far.
- P&G is moving toward powering its plants with 100% renewable energy and employing recycled materials or renewable materials for all its products and packaging.
- Live, Learn, and Thrive, P&G's corporate cause, focuses on helping needy children around the world get off to a healthy start, get access to education, and build skills for life.
The company has also recently been working with the World Wildlife Fund on a project to use plants to make plastic instead of petroleum, and it has begun an initiative to streamline product packaging. P&G is even making a concerted effort to ensure that its supply chain is an ethical one. To that end, the company has gone out of its way to comply with California's Transparency in Supply Chain Act, which "requires that manufacturers and retailers disclose their efforts to eradicate slavery and human trafficking from the supply chain."
Holding steady in a less-than-perfect economy
With its sustainability credentials established, now let's look at a few basic metrics and see how P&G rates as a business and an investment against its peers.
Revenue growth: In its most recent quarter, P&G's revenue declined by 1% year over year, as did Johnson & Johnson's (NYS: JNJ) . Kimberly-Clark (NYS: KMB) was dead flat, at 0%. Clorox (NYS: CLX) is the only company to have performed solidly in its most recent quarter, managing 4% revenue growth YOY.
Earnings growth: Out of that 1% decline, P&G managed a staggering 44.7% YOY growth in earnings, though that figure was helped along considerably by a lower-than-expected tax rate and the sale of its snacks business. For the same period, J&J's earnings tumbled 49.3% and Clorox's climbed a meager 3%. Kimberly-Clark did very well in comparison with everyone, growing its earnings by 22.1% YOY.
Cash-to-debt ratio: It's always good to see more cash than debt on the balance sheet, ideally at least 1.5 times more.
- With $4.4 billion in cash and $29.8 billion in debt, P&G's C/D is a disappointing 0.15.
- Cash of $1.1 billion and debt of $6.8 billion give Kimberly-Clark a similarly disappointing C/D of 0.16.
- With $16.9 billion in cash and $17.6 billion in debt, J&J's C/D is significantly better but still well shy of the benchmark, at 0.96.
- With $267 million in cash and 2.72 billion in debt, Clorox's C/D is a pitiful 0.09.
With money as cheap as it is, lots of companies are highly leveraged these days. At least interest payments are low, but operating under a potentially crushing debt load is never ideal.
Price-to-earnings ratio: P&G's P/E of 18.34 does put it at the upper end of the average for publicly traded American companies, but not radically so. And it's still lower than J&J's P/E of 21.48.
Making money while making a difference
A lot of companies pay lip service to the notion of corporate social responsibility but then leave it at that. Given a depressed domestic and international economy, P&G is performing well enough as a for-profit enterprise and will no doubt return to solid profitability; it's too big and too pervasive not to. The company also seems genuinely committed to its socially responsible programs as well. Are any companies perfect in this regard? No. But to paraphrase Voltaire, it's important to never let the quest for the perfect drive out the good.
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The article Procter & Gamble Makes Money While Making a Difference originally appeared on Fool.com.Fool contributor John Grgurich quotes Voltaire whenever he gets the chance, though his German shepherd prefers Nietzsche. Neither owns shares of any of the companies mentioned in this column. Follow John's dispatches from the bloody front lines of capitalism on Twitter, @TMFGrgurich.The Motley Fool owns shares of Clorox and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson, Procter & Gamble, and Kimberly-Clark and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a gripping disclosure policy.
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