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Procter & Gamble (P&G) to Buy Back $1.25B Debt Securities


The Procter & Gamble Company PG announced a buyback of up to $1.25 billion in debts. This move will reduce the company’s debt burden as well as improve the efficiency of its capital structure.

The Cincinnati-based consumer goods giant will pay cash for a dozen types of debt securities. Further, the company stated that the “tender offer is intended to allow Procter & Gamble to retire higher-interest rate debt in the current low interest-rate environment and further improve the efficiency of Procter & Gamble’s capital structure”. The offer will expire at midnight, as per Cincinnati time, on Nov 14.

At present, Procter & Gamble is obliged to pay much higher for debts. The company is entitled to pay 8.75% on $100 million of securities due in 2022. In contrast, the company stated that U.S. Treasury notes due on Sep 30, 2021 are to pay 1.125%.



In fiscal 2016, Procter & Gamble generated $15.4 billion of operating cash flow and $12.12 billion of free cash flow with 115% adjusted free cash flow productivity. The company returned $7.4 billion in dividends and $8.0 billion through share repurchases (including Duracell transaction) in the year.

The company’s total debt was $30.6 billion as on Jun 30, 2016 versus $30.3 million a year ago.

Procter & Gamble boasts strong financials and has been delivering free cash flow of $10–$11 billion annually over the past four to five years. The cash flow allows management to invest in product innovation, acquisitions and brand development in addition to regular dividend payments and share repurchases. The company has also consistently raised its dividend payout. In fact, the 1% dividend hike in Apr 2016 marked the 60th consecutive year of dividend increases. In fact, the company has aggressive plans in place to return up to $70 billion through dividends and share repurchases over the next four years.

Although Procter & Gamble has been struggling to boost sales over the past several quarters, the company is focused on streamlining its business which concerns the Billion Dollar Brands like Tide, Pampers and Oral-B. As part of these portfolio strengthening and simplification plans announced in Aug 2014, the company completed the shift of “P&G Specialty Beauty Brands” under Coty Inc. COTY on Sep 30.

We believe that a smaller and more focused company should be able to grow faster, create more value and be much easier to manage. This positions the company favorably for stronger sales and earnings generation.

Zacks Rank & Key Picks

Procter & Gamble currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Equally well-ranked consumer staples stocks are Colgate-Palmolive Co. CL and The Clorox Company CLX.

Colgate-Palmolive has recorded an average positive earnings surprise of 0.71% over the past four quarters, with a beat in each. While Colgate-Palmolive has a long-term earnings growth rate of 7.86%, Clorox has a long-term earnings growth rate of 7.63%.

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