P&G to Divest Pet Care Brands - Analyst Blog

The Procter & Gamble Company PG recently entered into an agreement to sell off three of its pet care brands to privately held American confectionary and pet food manufacturer, Mars, Inc. The three brands -- Iams, Eukanuba and Natura -- will be sold for $2.9 billion in cash. The transaction is expected to complete in the second half of 2014.

The sell-off includes businesses in North America, Latin America and some of other countries, which together constitute 80% of P&G's worldwide pet care business. However, the agreement does not include P&G's pet care business in the European Union. P&G has separate plans for these businesses.

P&G will report the to-be-divested pet care business as discontinued operations in the upcoming Apr-June 2014 quarter. The company expects to restate earnings of about 3 cents and 4 cents per share from core earnings to discontinued operations for both fiscal 2013 and fiscal 2014, respectively.

This will leave the fiscal 2014 earnings growth rate guidance unchanged at 3-5%. The company also mentioned that fiscal 2015 earnings will not be materially impacted by this transaction. The net proceeds from the transaction will be used for general corporate purpose.

Pet care is a part of P&G's Health Care segment. Prior to July 1, 2013, it was reported under the Fabric Care segment. Last year in Mar 2013, the company recalled dry pet food manufactured by its subsidiary, Natura Pet Products Inc., due to possible contamination with Salmonella. As a result, the volumes of pet care have been declining since the fourth quarter of fiscal 2013. This strategic divesture will help P&G to focus its resources on its core business.

P&G has been focusing on improvement of its product portfolio through strategic initiatives, which enable it to concentrate on its fast growing businesses. For example, in Jun 2012, the company divested its snacks unit, Pringles to Kellogg Co. K to focus more on beauty and personal care products.

In fiscal 2013, P&G divested its underperforming bleach business in Italy and Portugal and the Braun household appliances business. In 2014, the company plans to divest its remaining global bleach businesses.

Mars, the maker of M&M'S, Snickers and Orbit, will add these three brands to its existing Petcare segment. Mars is already known for its pet products like Pedigree, Royal Canin and Whiskas. The addition of these three brands will further widen its product portfolio.  

P&G currently carries a Zacks Rank #4 (Sell). Some better-ranked companies from the consumer goods sector include Diamond Foods, Inc. DMND and J&J Snack Foods Corp. JJSF. All these stocks carry a Zacks Rank #2 (Buy).