P&G to Divest Pet Care Brands - Analyst Blog
April 10 2014 - 6:00PM
Zacks
The Procter & Gamble Company (PG) recently
entered into an agreement to sell off three of its pet care brands
to privately held American confectionary and pet food manufacturer,
Mars, Inc. The three brands -- Iams, Eukanuba and Natura -- will be
sold for $2.9 billion in cash. The transaction is expected to
complete in the second half of 2014.
The sell-off includes businesses in North America, Latin America
and some of other countries, which together constitute 80% of
P&G's worldwide pet care business. However, the agreement does
not include P&G’s pet care business in the European Union.
P&G has separate plans for these businesses.
P&G will report the to-be-divested pet care business as
discontinued operations in the upcoming Apr-June 2014 quarter. The
company expects to restate earnings of about 3 cents and 4 cents
per share from core earnings to discontinued operations for both
fiscal 2013 and fiscal 2014, respectively.
This will leave the fiscal 2014 earnings growth rate guidance
unchanged at 3-5%. The company also mentioned that fiscal 2015
earnings will not be materially impacted by this transaction. The
net proceeds from the transaction will be used for general
corporate purpose.
Pet care is a part of P&G’s Health Care segment. Prior to July
1, 2013, it was reported under the Fabric Care segment. Last year
in Mar 2013, the company recalled dry pet food manufactured by its
subsidiary, Natura Pet Products Inc., due to possible contamination
with Salmonella. As a result, the volumes of pet care have been
declining since the fourth quarter of fiscal 2013. This strategic
divesture will help P&G to focus its resources on its core
business.
P&G has been focusing on improvement of its product portfolio
through strategic initiatives, which enable it to concentrate on
its fast growing businesses. For example, in Jun 2012, the company
divested its snacks unit, Pringles to Kellogg Co.
(K) to focus more on beauty and personal care products.
In fiscal 2013, P&G divested its underperforming bleach
business in Italy and Portugal and the Braun household appliances
business. In 2014, the company plans to divest its remaining global
bleach businesses.
Mars, the maker of M&M’S, Snickers and Orbit, will add these
three brands to its existing Petcare segment. Mars is already known
for its pet products like Pedigree, Royal Canin and Whiskas. The
addition of these three brands will further widen its product
portfolio.
P&G currently carries a Zacks Rank #4 (Sell). Some
better-ranked companies from the consumer goods sector include
Diamond Foods, Inc. (DMND) and J&J
Snack Foods Corp. (JJSF). All these stocks carry a Zacks
Rank #2 (Buy).
DIAMOND FOODS (DMND): Free Stock Analysis Report
J&J SNACK FOODS (JJSF): Free Stock Analysis Report
KELLOGG CO (K): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis Report
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