CINCINNATI -- Procter & Gamble Co. shares dipped to a two-year low last week as Wall Street worried about a trade war with China and P&G investors remained impatient for growth.
If it continues, the slide could intensify pressure on P&G to take more drastic action to end five years of revenue shrinkage and market-share losses to rivals.
That’s because P&G for the first time in its history has a shareholder activist on its board.
Nelson Peltz became a P&G director March 1 after waging a proxy fight against the company last year. During the campaign, Peltz argued P&G should reorganize into three “largely autonomous” operating units. P&G rejected that idea as “a precursor to a breakup of the company.”
Before CEO David Taylor announced the board appointment in December, he got Peltz to agree that the company should not be “predisposed to taking on excessive leverage, or substantially reducing R&D spending, or advocating for a break-up of the company, or moving the company out of Cincinnati."
Has Peltz changed his views, now that Trian Fund Management LP lost $579 million in market value from its P&G investment in the last three months? Neither he nor P&G responded to WCPO’s inquiry. But before leaping to conclusions, investors will have to separate P&G’s decline from secular and seasonal trends.
P&G stock closed at $75.91 Friday, down nearly 17 percent year to date. It’s been drifting downward since Jan. 23, when P&G’s second-quarter earnings showed continued sluggishness in its shaving and baby-care brands.
“Investors are losing faith that P&G will turn a corner any time soon,” said Bernstein Research analyst Ali Dibadj. At the same time, Dibadj said P&G suffers from “secular pressure,” or industry trends causing stocks to decline for many manufacturers of household and personal-care products.
A list of 17 exchange-traded funds that consist of consumer-staples stocks are down between five to 10 percent year to date, according to the online database www.ETFdb.com. The S&P 500 is down about 10 percent from its 2018 peak, but even after two months of turbulent trading it’s never fallen below levels achieved last October. P&G, by contrast, is down nearly 17 percent from its 2018 peak and trading at levels not seen since January 2016.
Seasonal headwinds might also be a factor.
“P&G has historically been one of the worst-performing stocks on the S&P 500 during the month of March,” said Elizabeth Harrow, director of digital content for Schaeffer Investment Research in Blue Ash. The firm published research in February showing P&G averaged a March return of just 0.18 percent in the last 10 years, “the 12th worst March showing of all S&P components.”
Harrow said P&G has traded between $75 and $95 for most of the last five years. If it falls below $75, ratings downgrades by analysts and automatic sell orders by computer-based traders could put further downward pressure on the stock.
“P&G investors will also be watching closely for any indication that the dividend is at risk of being reduced,” Harrow added. “At 3.58 percent, P&G's current yield is on par with some utility stocks.”
Whether it's from dividend risk or market forces outside P&G's control, Harrow said continuing declines in the company's share price would eventually cause Peltz to push for more radical change.
"Based on the conciliatory tone from both P&G and Peltz following his appointment, a drastic restructuring is probably not a scenario investors need to brace for in the immediate future," she said.