Procter & Gamble Exits Pet Care, But Investors Are Still Unimpressed

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Source: Thinkstock

Source: Thinkstock

Consumer giant Procter & Gamble (NYSE:PG) announced on Wednesday that Mars, Inc. has agreed to buy the Iams, Eukanuba, and Natura pet supplies brands in major markets for $2.9 billion in cash. The markets — North America, Latin America, and some others outside of Europe — represent about 80 percent of Procter & Gamble’s Pet Care business’s global sales. The brands will join a portfolio at Mars that already includes Pedigree, Whiska, Banfield, and Royal Canin.

The news did little to move Procter & Gamble stock on Wednesday and may have even weighed on investor sentiment. Shares closed the day up just 0.17 percent, trailing a 1.11 percent increase in the Dow Jones Industrials and a 1.09 percent increase in the S&P 500 index. Procter & Gamble Chief Executive Officer Alan G. Lafley framed the sale — an exit from the pet care industry — as an “important step in our strategy to focus P&G’s portfolio on the core businesses where we can create the most value for consumers and shareowners,” but investors appeared hesitant to accept that “the transaction creates value for P&G shareowners,” as Lafley argued.

Procter & Gamble will begin reporting results from the sold pet care business as discontinued operations beginning in the second quarter. The impact of the divesture is not expected to be significant, and the fiscal 2014 core earnings growth forecast is unchanged at 3 to 5 percent.

However, this growth forecast is already down from a range of 5 to 7 percent. Procter & Gamble downwardly revised its estimate in February after it became obvious that foreign exchange would remain a significant headwind moving through the first half of the year and possibly beyond.

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