12 August 2009

PG: Financial Gauge Analysis for the June 2009 Quarter

In an earlier post, we examined Procter & Gamble's (NYSE: PG) Income Statement for the June quarter.  Earnings in this period, the fourth quarter of fiscal 2009, fell from $0.92 to $0.80 per share. 

We have since mined the financial statements in P&G's earnings announcement to update the metrics we use to assess Cash Management, Growth, Profitability and Value.  This post reports on these metrics and the Financial Gauge scores.

The Balance Sheet included in the earnings announcement was condensed.  To compute GCFR gauge scores, we had to estimate some data that the company has not yet made available.

We will adjust the results after P&G files a 10-K annual report with the SEC.

In the mean time, P&G's preliminary GCFR gauge scores are as follows:
  • Overall: 44 of 100 (down from 52)

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.

Cash ManagementJun 2009Mar 2009Jun 20085-Yr Avg
Current Ratio0.
Debt/CFO (years)
Inventory/CGS (days)71.272.369.968.3
Finished Goods/InventoryN/A0.70.60.7
Days of Sales Outstanding (days)28.928.329.730.0
Working Capital/Invested Capital-9.4%-11.4%-6.3%-5.8%
Cash Conversion Cycle Time (days)38.351.544.652.7
Gauge Score (0 to 25)5

P&G's Current Assets have been less than Current Liabilities, as seen in the Current Ratio below 1.0 and the negative Working Capital, for several years.

Current Liabilities are higher than what would normally be expected because the company has a substantial amount of debt, now $16.3 billion, due in less than one year.  Short-term debt, mostly likely commercial paper, has ranged between $12 billion and $22 billion since December 2006.

Total Debt, including both short- and long-maturity paper, would require 2.5 years of present Cash Flow from Operations to redeem.

GrowthJun 2009Mar 2009Jun 20085-Yr Avg
Revenue growth-3.3%1.4%7.4%9.3%
Operating Profit growth10.1%13.9%19.4%14.6%
CFO growth-0.6%-7.0%11.7%16.2%
Net Income growth-4.3%5.8%14.8%18.4%
Gauge Score (0 to 25)161410
1. Revenue, CFO, and Net Income growth rates compare the last four quarters to the four previous quarters.  The Operating Profit rate is the annualized rate of growth in Operating Profit after Taxes over the last 16 quarters.

The worldwide recession and the stronger U.S. Dollar (relative to 2008) weakened P&G's Growth metrics.

An unusually low tax rate last year, plus the sale of the Folgers coffee business to J.M. Smucker (NYSE: SJM) also has an effect on these numbers.

ProfitabilityJun 2009Mar 2009Jun 20085-Yr Avg
Operating Expenses/Revenue79.6%79.9%79.6%80.2%
Free Cash Flow/Invested Capital11.8%10.5%12.0%13.6%
Accrual Ratio0.6%2.1%-0.3%-0.1%
Gauge Score (0 to 25)6799

Operating Expenses have been stable on a trailing four quarters basis.

The declines in ROIC and FCF/IC has been relatively modest.

ValueJun 2009Mar 2009Jun 20085-Yr Avg
P/E vs. S&P 500 P/E
Enterprise Value/Cash Flow (EV/CFO)12.813.115.516.7
Gauge Score (0 to 25)2023126

The price of P&G shares increased 8.5 percent in the June 2009 quarter, from $47.09 to $51.10.  However, from June 2008 to June 2009, the shares fell 16 percent. 

OverallJun 2009Mar 2009Jun 20085-Yr Avg
Gauge Score (0 to 100)44524127

Of the four category gauges, Growth changed the most in the June quarter, and the direction was down.  Growth has become hard to find across a wide range of industries.  The Value gauge remains fairly strong.

Because we don't yet have a complete set of financial statements for the June 2009 period, it will be important for us to re-assess the analysis when a 10-K filing makes this information available.

Full disclosure: No position in PG at time of writing.

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