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P&G May Have Peltz On Board Per a Recount, Acquires Native

The battle for a seat on the board of The Procter & Gamble Company PG or P&G may now be drawing to a close. Hedge fund billionaire Nelson Peltz seems to have won a seat, albeit narrowly, after a recounted tally of votes was released on Nov 15.

Shares of the world’s largest consumer products maker by market value gained more than 3% in after-hours trading on Nov 15. The news might have cheered P&G investors, who support management reshuffle in the hope of financial improvement.  

P&G revealed Peltz is leading Ernesto Zedillo by 0.0016%, or 42,780 shares, out of the company's nearly 2.7 billion in diluted shares outstanding. In a preliminary count disclosed last month, Peltz fell short of winning by 6.2 million votes, after losing by 0.3% of votes cast.

However, yesterday’s updated vote count is also a preliminary one, and subject to review and a challenge period. The company, currently under CEO Taylor, is simplifying its operating structure to boost sales and profits.

In contrast, Peltz’s Trian Fund Management wants to radically alter the company’s corporate structure. Trian argued that P&G should be simplified further into three standalone business units, namely grooming ($26 billion in annual sales), home care ($21 billion) and family care ($18 billion).

Native Buyout

In a separate business development, P&G announced the acquisition of Native, a startup competitor that specializes in direct-to-consumer personal care products. Although the financial terms of the deal were not disclosed, it marks P&G's first buyout in eight years.

Bill Brace, P&G's vice president of North American Personal Care said in a statement that this addition will help P&G to expand its portfolio that already includes Secret, Old Spice and Gillette, to reach consumers avoiding ingredients like parabens and aluminum.

Consumers have become extremely vigilant of the ingredients used in products. Native’s website proclaims its brand as "deodorant that isn't a science experiment.”

The purchase not only gives P&G another beauty brand in the field of natural ingredients, but also gives a solid foothold in digital sales. The Cincinnati-based consumer products giant said Native would appeal to consumers, who buy natural personal care items online and not in stores.

Again, the acquisition could be an answer to Peltz, who in his quest for a seat on P&G's board, had earlier criticized the company for being slow in adapting to innovations and insisted on taking over small, on-trend companies. P&G, however, has largely focused on streamlining operations by divesting rather than acquiring in recent years.

Share Price Performance

P&G’s shares have gained 5% so far this year, comparing unfavorably with the growth of the industry it belongs to. Earnings estimates for the current year have remained unchanged over the last 30 days. Meanwhile, P&G has surpassed earnings estimates in each of the trailing four quarters. The company’s new product lineup, aggressive marketing, productivity improvement and cost-saving initiatives should boost its profits and thereby the stock’s performance in the upcoming quarters.

Zacks Rank & Key Picks

P&G currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the same sector are Pilgrim's Pride Corporation PPC and Tyson Foods, Inc.’s TSN, sporting a Zacks Rank #1 (Strong Buy), and Unilever PLC UL, with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Pilgrim's Pride is expected to register 58% EPS growth this year.

Tyson Foods has an expected EPS grow rate of 8% for this year.

Unilever PLC projects earnings growth of 26% for 2017.

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