Executive Summary

Procter & Gamble (PG) manufactures and sells a wide range of consumer packaged goods (CPG) across various categories like fabric and home care, baby, feminine and family care, and beauty, grooming, and health care. The company generates revenue by selling these branded products through diverse retail channels globally. PG exhibits strong economic quality due to the repeat purchase nature of its products and established brand equity, which contributes to stable demand. Its competitive edge stems from its scale, brand recognition, and distribution network. Key risks include changing consumer preferences, private label competition, and currency fluctuations. The company’s immense scale makes innovation difficult. PG is a CPG giant that sells everyday household products.

1. What They Sell and Who Buys

PG sells branded consumer packaged goods, including detergents (Tide, Ariel), diapers (Pampers), razors (Gillette), shampoos (Head & Shoulders, Pantene), and toothpaste (Crest). Target consumers are households worldwide seeking familiar, reliable brands for daily use.

2. How They Make Money

PG's revenue model is based on selling high-volume, relatively low-priced consumer goods. Revenue is derived from direct sales to retailers, distributors, and e-commerce platforms.

3. Revenue Quality

Revenue quality is high due to the non-discretionary nature of many of PG’s products. Consumers consistently repurchase items like toothpaste, diapers, and detergents, leading to predictable and recurring sales.

4. Cost Structure

PG’s cost structure includes the cost of goods sold (raw materials, manufacturing), marketing and advertising expenses (brand promotion), and SG&A (distribution, R&D). Significant scale allows for cost advantages, but the marketing spend is substantial.

5. Capital Intensity

PG is moderately capital intensive. It requires investment in manufacturing facilities, distribution networks, and R&D. However, its high sales volume relative to assets allows for efficient capital utilization.

6. Growth Drivers

Growth is driven by a combination of factors: product innovation (new formulations, packaging), market penetration in emerging economies, and strategic acquisitions. Pricing strategies and brand extensions also contribute.

7. Competitive Edge

PG’s competitive advantage rests on brand strength, global distribution, and economies of scale. Established brands such as Tide and Pampers enjoy strong consumer loyalty. Its extensive distribution network provides broad market access.

8. Industry Structure and Position

The CPG industry is competitive, with a mix of large multinational corporations (Unilever, Nestle) and smaller, regional players. PG holds a leading market share in several key product categories. Private label brands pose a constant threat.

9. Unit Economics and Key KPIs

Key performance indicators include organic sales growth, market share, gross margin, and free cash flow conversion. Unit economics are strong in established categories, characterized by high repeat purchase rates.

10. Capital Allocation and Balance Sheet

PG allocates capital to R&D, marketing, dividends, and share repurchases. The balance sheet is generally strong, reflecting consistent cash flow generation. PG prioritizes returning cash to shareholders.

11. Risks and Failure Modes

Risks include changing consumer preferences (shift to natural products), increasing private label competition, currency fluctuations (due to global operations), and raw material price volatility. Failure to innovate or adapt to market trends could erode its competitive position.

12. Valuation and Expected Return Profile

Valuation is at a premium due to its stability and dividend yield. Expected returns are driven by modest organic growth, cost efficiencies, and continued share repurchases. Total return profile is moderate compared to growth stocks.

13. Catalysts and Time Horizon

Catalysts include successful product innovation, expansion into new markets, and strategic acquisitions. The time horizon is long-term, reflecting the company’s established position and slow-growth characteristics.

🟢 = Buy (Strong fundamentals, attractive valuation)

🟡 = Hold (Strong fundamentals, fair valuation; or neutral outlook)

🔴 = Sell (Deteriorating fundamentals or extreme overvaluation)