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:
- Cash Management: 5 of 25 (down from 6 in March)
- Growth: 1 of 25 (down from 6)
- Profitability: 6 of 25 (down from 7)
- Value: 20 of 25 (down from 23)
- 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 Management | Jun 2009 | Mar 2009 | Jun 2008 | 5-Yr Avg |
| Current Ratio | 0.7 | 0.7 | 0.8 | 0.9 |
| LTD/Equity | 32.7% | 33.7% | 33.9% | 46.1% |
| Debt/CFO (years) | 2.5 | 2.8 | 2.4 | 2.8 |
| Inventory/CGS (days) | 71.2 | 72.3 | 69.9 | 68.3 |
| Finished Goods/Inventory | N/A | 0.7 | 0.6 | 0.7 |
| Days of Sales Outstanding (days) | 28.9 | 28.3 | 29.7 | 30.0 |
| Working Capital/Invested Capital | -9.4% | -11.4% | -6.3% | -5.8% |
| Cash Conversion Cycle Time (days) | 38.3 | 51.5 | 44.6 | 52.7 |
| Gauge Score (0 to 25) | 5 | 6 | 5 | 3 |
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.
| Growth | Jun 2009 | Mar 2009 | Jun 2008 | 5-Yr Avg |
| Revenue growth | -3.3% | 1.4% | 7.4% | 9.3% |
| Revenue/Assets | 57.0% | 58.8% | 58.3% | 67.2% |
| Operating Profit growth | 10.1% | 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) | 1 | 6 | 14 | 10 |
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.
| Profitability | Jun 2009 | Mar 2009 | Jun 2008 | 5-Yr Avg |
| Operating Expenses/Revenue | 79.6% | 79.9% | 79.6% | 80.2% |
| ROIC | 12.1% | 12.6% | 12.7% | 14.5% |
| Free Cash Flow/Invested Capital | 11.8% | 10.5% | 12.0% | 13.6% |
| Accrual Ratio | 0.6% | 2.1% | -0.3% | -0.1% |
| Gauge Score (0 to 25) | 6 | 7 | 9 | 9 |
Operating Expenses have been stable on a trailing four quarters basis.
The declines in ROIC and FCF/IC has been relatively modest.
| Value | Jun 2009 | Mar 2009 | Jun 2008 | 5-Yr Avg |
| P/E | 11.8 | 10.5 | 16.5 | 20.4 |
| P/E vs. S&P 500 P/E | 0.5 | 0.6 | 0.9 | 1.2 |
| PEG | 1.2 | 0.8 | 0.8 | 1.0 |
| Price/Revenue | 2.0 | 1.8 | 2.4 | 2.7 |
| Enterprise Value/Cash Flow (EV/CFO) | 12.8 | 13.1 | 15.5 | 16.7 |
| Gauge Score (0 to 25) | 20 | 23 | 12 | 6 |
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.
| Overall | Jun 2009 | Mar 2009 | Jun 2008 | 5-Yr Avg |
| Gauge Score (0 to 100) | 44 | 52 | 41 | 27 |
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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