Connecting the Dots: Procter & Gamble, the Strong Dollar, and Pepto Bismol
By Tony Sagami
What do those household-name companies have in common? Not much, other than that a huge part of the sales come from outside the US.
Really, really huge.
Collectively, the 500 companies in the S&P 500 get 46% of their sales and roughly 50% of their profits from outside the US. They are truly multinational giants.
Expanding your customer base is always a good thing, but doing business overseas is not without peril, and one of the underappreciated perils is the impact of currency movements. A stronger dollar can hurt companies that do a large share of their business overseas because sales in other countries translate back into fewer dollars.
Just ask Procter & Gamble, which reported their Q4 results last week.
P&G sold $20.16 billion of toothpaste, laundry detergent, diapers, toilet paper, and razor blades last quarter, but that was a 4% decline from the same period a year ago.
Worse yet, profits plunged by 31% to $1.06 per share, which was not only well below the $1.13 per share Wall Street was expecting but also a horrible 31% year-over-year drop. That’s bad.
What’s behind those terrible numbers? The US dollar.
“The October-December 2014 quarter was a challenging one with unprecedented currency devaluations,” said CEO A.G. Lafley.
The US Dollar Index was up 13% in 2014 and is now near a 9-year high. That strong dollar is a big millstone around the neck of US exporters, whose products are now more expensive for foreign buyers as well as negatively affecting profits once those foreign sales are converted back into US dollars.
Worse yet, Lafley said the environment will “remain challenging” in 2015.
The US dollar is now at a 9-year high and threatening to go higher. Much, much higher.
By historical standards, the US dollar is still cheap and expected to go higher by many observers, including Procter & Gamble.
P&G warned Wall Street that its 2015 sales will fall by another 5% and its 2015 profits will shrink by another 12%.
Think about those two numbers: 5% lower sales and 12% lower profits.
The strong dollar is a big problem for P&G because it gets roughly two-thirds of its revenues from outside the US, so it’s more affected by the strong US dollar than most companies, but P&G is far from alone when it comes to currency woes.
The line of companies that have warned that the strong dollar is hurting their profits is getting longer and longer.
Microsoft, Pfizer, McDonald’s, Caterpillar, United Technologies, Emerson Electric, 3M, and even Walmart have warned that the rising dollar is depressing their profits.
What does this mean to you? That a LOT more companies are going to report lower-than-expected sales and profits in 2015 and those that do will see their stock get hammered, just like P&G.
The problem is that Wall Street is blind to this profit-crushing trend.
In 2014, the S&P 500 companies collectively earned $117.02, and the median forecast of Wall Street strategists for 2015 S&P 500 earnings is $126, which is an optimistic 7.6% growth in earnings.
Unless you think that Procter & Gamble is an isolated island of trouble (and it’s not), you should be very worried that Wall Street is grossly underestimating the profit-crushing impact of the strong dollar as well as grossly overestimating corporate America’s earnings growth.
That massive disconnect between reality and the Wall Street dream world is going to translate into some very tough times for stock market investors. If you haven’t added some defense to your portfolio… you may need lots and lots of a popular Procter & Gamble product: Pepto Bismol.
Tony Sagami
30-year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here. To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.
Proctor and Gamble…the company that :
1) Funded a small group called the American Heart Association with a 1.7 million dollar influx of cash.
2) ) Who intern adopted a study by Dr. Ancel Benjamin Keys that was full of B.S when it said that animal fat was the cause of heart disease .
3) Which lead to folks getting rid of animal fat in their diet and using Crisco…made by Proctor and Gamble.
4) Vegetable oils when heated in turn cause….heart disease ….and other bad stuff .
Damnit. I have a nice block of P&G stock. Oh, now I remember why. The company has paid a dividend on its stock for 124 consecutive years and has RAISED the dividend on its stock for the past 57 consecutive years.
Buy more Crest toothpaste. Help SSS pay his golf cart fees. Heh.
My heart bleeds purple peanut butter for any multi-national corporation.
So now I know who voted down my P&G post.
I’d never invest in a company that’s aided and abetted in the deception of the American people.
“So now I know who voted down my P&G post. (Yep, it was I.) I’d never invest in a company that’s aided and abetted in the deception of the American people.”
—-Buckhed
Tell you what, Blockhead. Here’s what I want you to do. Since you don’t like P&G as an investment, why not go the whole way and boycott all P&G products? Throw away any and all P&G products that may exist in your home. Here’s a list of just some P&G brand names to help you get stated.
Duracell, Gillete, Oral B, Scope, Tide, Cheer, Gain, Downy, Ivory, Old Spice, Cascade, Charmin, Bounty, Max Factor, Olay, Braun, Head and Shoulders, Pantene, Cover Girl, Tampax, Luvs and Pampers.
Whew. Quite a list. And it’s not a complete list. Better get cracking.
I don’t feel the least bit sorry for these multinational corporation’s profits going into the shitter. Most of them donate heavily to the current crop of liberal ass commy candidates at each election and they almost ALL benefit from corporate welfare from the taxpayers here in the USSA. Spare me the hearts and flowers for these rat bastards if profits drop ,tough tit.
None of these corporate CEOs cried in their pillow when my annual income went down by 40% when Obongo was elected.
“I don’t feel the least bit sorry for these multinational corporation’s profits going into the shitter.”
—-Bea Lever
Multinationals are an easy punching bag. Let’s take “Big Oil.” 7 of the top 10 oil companies on the planet are state owned – Saudi Arabia, Russia, Iran, China, Kuwait, Mexico, and UAE. The other 3 are multinationals – Exxon Mobll (at #4, it’s the biggest oil multinational), British Petroleum, and Royal Dutch Shell.
Pick your poison, pseudo-capitalists. Multinationals or governments?
SSS
I thought you would be smart enough to vacate the casino by now. I would hate to see you added to the “SUCKER” list when TSHTF. PNG indeed.
Thanks for the list Super Silly Simpleton…..I checked it and others…not one product from P&G in my house.How much of the Tampax have you used in the old mangina ?
I saw that Old Spice was on the list too …I bet you were that creepy old guy at the golf course in front of us a few months ago when I was in Arizona. He smelled of Old Spice and Vitalis.You reminded me of that character from Jethro Tull’s song Aqualung :
Sitting on a park bench
Eying little girls
With bad intent.
Snot running down his nose
Greasy fingers smearing shabby clothes.
Drying in the cold sun
Watching as the frilly panties run.
Feeling like a dead duck
Spitting out pieces of his broken luck.
Yep that’s you isn’t it .
I know why P&G has been profitable …..it’s from the all of the Crisco you’ve purchased for your Broke Back parties with you and the rest of your CIA buddies. I bet at your age you’ve forgotten a few times to put the rubber sheets on the bed.
“I thought you would be smart enough to vacate the casino by now. I would hate to see you added to the “SUCKER” list when TSHTF. PNG indeed.”
—-Bea Lever
Thank you. No one has ever referred to me as PNG, which I assume means “persona non grata.” Sweet.
I was feeling a bit frisky yesterday and thinking that I hadn’t pissed anyone off on this site lately, which happens to be one of my main duties here. I started with Buckhed, to whom I referred as Blockhead and Buckwheat. He didn’t bite. Then I tried Stucky, who passingly compared me to a NYC subway rat, which is OK but rather mild.
So I thought I’d give you a shot. Bingo!!!! I’m back on top of my game. Now, answer my question, “Pick your poison, pseudo-capitalists. Multinationals or governments?” Heh.
Oops. I see Blockhead was typing an insulting response (his 10:40 am above) at the same time I was responding to Bea Lever. I can just see him running around his house making sure there aren’t any P&G products present. Great, I’m 2 out of 3. I haven’t lost my touch.
Nope Simpleton….no running around, my memory works well. Don’t forget,you have to have game to be at the top of your game .You have zero game….just ask those around you. They may tell you the truth…that you lack game and the ability to put together a coherent thought.
SSS
Brain fart on my part…that should have said , P&G indeed. I am rarely sick but today I have a terrible cold.
Also, you did not piss me off. I can tell you that there are ZERO products made by P&G in my homes and I would not use Crest toothpaste if you paid me. I do not use toothpaste with fluoride, I also don’t use laundry products with nasty chemical compounds in them.
Take the advice of Voltaire, paper always reverts back to it’s original value, ZERO. In the case of P&G, I would think that you could look for a loss of around 60% of value if the market tanks to the point we are expecting. Hate to see you raped by the criminal cabal in the casino.
And SSS, I dislike multinationals, oil companies and governments on an equal level so don’t look for me to pick one over the other. Three finger salute for them all.
Hmm, some dislike of multinationals by Buckhed and Bea Lever, who has a bad cold (get well soon). Bea says she even dislikes oil companies. WTF? Assuming she owns a car, where does she buy her gas or go to get her fucking oil changed? Quick Trip does NOT have its own brand of gas. Jiffy Lube does NOT have its own brand of oil. Anyway, let’s try Conagra. Any of these brands in your pantry, fridge or freezer, you two?
Rotel, Healthy Choice, Hebrew National, Marie Callender’s, Hunts, Chef Boyardee, Wesson, Reddi Whip, Orville Redenbacher’s, La Choy, Pam, Gulden’s, Van Camp’s, Jiffy Pop, Libby’s, Rosarita, Fleishmann’s, Parkay, Blue Bonnet, Bertolli, PF Chang’s, and Van Camp’s.
I love Libby’s canned, sliced red beets. You gotta have Libby’s red beets. Am I right?