When pundits present a Trump-related scenario that has stocks sinking hard as the challenges of being president set in, I always come back to the material, the craft, which means looking at individual companies and asking how they will adjust to this new world.
All companies do it differently, but all companies know who the leaders are and, just like in sports, where there are coaches worth emulating, there are management teams worth aspiring to -- the most important, perhaps, being Procter & Gamble (PG) .
Why P&G? First, it's the most visible consumer packaged-goods stock-slash-bond market equivalent stock and therefore the first to experience the faux wrath of analysts trying to position themselves as aware of the great rotation out of these stocks and into the Freeports (FCX) and the Caterpillars (CAT) and the Cumminses (CMI) .
For example, in the last month PG got cut to Sell by two different -- and excellent -- houses as a recognition of how out of synch Procter is with the new institutional money management world.
Second, Procter, as a company, is front and center in a host of challenges: strong dollar havoc, political turmoil, online disintermediation and potential millennial irrelevance at best and scorn at worse for its use of inorganic materials and previously wasteful manufacturing processes, at least as judged by the purists who seem to be inheriting the shopping earth.
Finally, it's got real competitors in a dog-eat-dog world that are all challenged to get both market share as a company and mind share as a stock. There is also the need to keep pace in dividends in order to retain whatever bond market equivalent status that can still be gained by the plus-3% crowd, of which P&G is certainly one with its aristocratic 3%.
With those myriad challenges in mind, how did Procter do? First, right up front it gaffed the analyst sell recommendations with a guide up from 2% organic to 2% to 3%. Given that's the most important metric as it implies both share and innovation, anything else the company could deliver would be gravy.
But, oh, did the gravy taste great. The company, in its tour-de-force conference call, decided to respond to all of the questions it has received of late and grouped the call according to these issues. It was a play with answers to each: topline progress and prospects; retail trade transformation; natural products and sustainability; cost structure progress; portfolio; foreign exchange; capital structure and trade and tax reform.
I can't short-shrift this call, so let me give you a summary of each because it shows you how the modern-day multinational can triumph over any of the Trumpian woes that so many predict must occur, which empirically would mean PG's stock should fall to the high $70s from $87 to be in synch with a wilting market.
Top-line progress was superb in spite of multiple negatives, and that's how the company's so sure of its organic growth despite incredible headwinds like a change in the big Indian bank notes -- where individuals had to cash them in to reignite banking, which caused India to go from high-single-digit growth to a decline in high-single-digit sales. Economic crises in key markets like Egypt and Nigeria, and politically related currency devaluations like in the U.K. and Mexico, were triumphed over, too.
By innovation, with the new Scent Beads of Downy just taking the laundry-products market by storm. At the same time, the company strategically offered 70% of new moms Pampers through prenatal and hospital programs, gave 2 million Gillette razors to young men on their 18th birthdays and will distribute 30 million laundry samples to new washing machine buyers. Clever.
It's rapidly become agnostic to channels, embracing Chinese and Korean e-commerce while working with American providers, which I am reading to be Amazon (AMZN) . At the same time, its elegy to stores is brilliant: "Stores continue to hold strong relevance for many shoppers: Stores are more convenient, stopping at one location for multiple items. No packages left at the door, no passwords to manage. They can be more efficient for many shoppers: grocery, gas, banking and pharmacy all in one stop. Stores can be cheaper with no membership fees or delivery charges, and for some consumers, stores offer a social experience away from home or a break behind their desks." That matters for PG because, with its heft, it can own the stores it deals with. (Amazon is part of TheStreet's Growth Seeker portfolio.)
The company spent nine paragraphs going over its headlong overhaul of both product lines to embrace natural and organic -- Herbal Essence taking front and center environmental status -- and giving detergent a small destructive footprint. It was a powerful reminder that Procter will not be left behind by those who want something that's natural. If they do not address the packaging issues, though, particularly for Gillette, I am more suspect of these initiatives.
Margins were helped immensely by a strategic decision to abandon six once-sacred categories including pet food and fragrances. The loss here? Minimal. The businesses they exited represented about 14% of fiscal 2013 sales and only about 6% of profit.
Forex is just a huge problem with no real salves. However, manufacturing locally is a big help, as are price increases that stick. Hedging is not a help given that the biggest swings are in countries where it's too costly or just can't be hedged. It's something, however, that, despite what the analysts feared, was basically removed to be as much of a non-issue as possible. It's not being done with alchemy, it's being done with rigor. I felt totally mollified after reading their tactics for dealing with a knotty issue.
Now, to the heart of the matter. P&G knows that if it's going to offer a competitive stock, it has to balance innovation and advertising with return of capital. It buys a huge amount of stock back with the proceeds of any assets it sells.
However, if you really want to step back and challenge this company's participation as part of a broader selloff, consider this value creation stat: The company has returned over $123 billion through dividends, share repurchases and share exchanges in the last 10 fiscal years. The entire company is worth only $225 billion. You think it can't handle a Trump-related selloff or a cyclical rotation? I would think again.
Oh, and talk of a cross-border tax? "P&G produces 85% of the products themselves in the U.S. domestically" and it exports 10%, so it has a net import balance of about 5%. It could be a huge win with repatriation and corporate tax rates depending upon the year as they vary widely.
The sum total of the call is nothing short of a rebuttal to those who would dump these shares or to those who would sell them as part of a broad S&P departure.
Or to put it another way: In this call, Procter answers all the reasons why selling a great American company off Trump's gaffes or miscues or ineffectiveness is just to give another person an opportunity to buy it below where you deserve to get it. To be sure, Procter is the best of the best. But all that means is buying best of breed might be the single best strategy to deal with the turmoil that hasn't yet occurred and that might never occur, but if it does, you will be a winner still.