Here’s Why Procter & Gamble is Dissing the U.S.
In 2007, legendary commodity investor Jim Rogers moved to Singapore. He saw great opportunities in the region and decided to take action. In an interview with MoneyWeek, he explained, “Asia is extremely exciting. It’s like moving to London in 1805 or New York in 1905. The future is Asia.” Apparently, Procter & Gamble Co. (NYSE:PG) feels the same way.
On Thursday, the consumer products giant announced it is relocating its global skin, cosmetics and personal-care unit from its Cincinnati headquarters to Singapore. The move will take around two years and see about 20 employees move to the new location. However, not everyone will be making the move. Virginia Drosos, the president for the global skin care unit, decided to retire rather than move her family overseas. “She has aspirations to lead another company but right now she’s going to be very focused on transitioning these businesses to their new leader,” a spokesperson for P&G said.
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Why did P&G decide to relocate across the globe? One reason is that the Asian beauty market is growing quickly and the company wants to be closer to its customer base. According to the Euromonitor, the Asia-Pacific region accounts for nearly half of the world’s $96 billion market for skin care. In 2011, the region grew almost $5 billion to account for $42.3 billion, compared to $37.6 billion in 2010. Management’s ability to recognize a growing market and move closer to it bodes well for longer-term success and also satisfies our A= ‘A-Level Management Runs the Company’ in our CHEAT SHEET investing framework.
In addition to fueling future beauty sales, the move to Singapore is also likely to bring tax benefits to P&G. While the headline corporate tax rate in the United States is 35 percent, it is only 17 percent in Singapore, down from 25.5 percent in 2001. Bob McDonald, P&G’s President and Chief Executive Officer, has been active in the past in regards to lowering America’s corporate tax rate. In March, he participated in a meeting with a dozen other CEOs in order to push for a headline corporate tax rate of 25 percent. However, through corporate tax loopholes, P&G reported a tax rate of about 22 percent last year. For the annual period ending Jun 29, 2011, the company posted nearly $15.2 billion of income before taxes, but reported $3.4 billion in tax expenses. Even with the loopholes, P&G still looks poised to reduce its tax burden in Singapore.
Shares of P&G climbed nearly 1 percent higher on Thursday. It was one of the best performers in the Dow Jones Industrial Average, behind Pfizer Inc. (NYSE:PFE), Chevron Corp. (NYSE:CVX) and Coca-Cola Co. (NYSE:KO). However, shares have fallen 3.85 percent year-to-date. For the most recent quarter, P&G reported earnings of $2.41 billion, representing a 16.1 percent decrease from a year earlier. The financial results also prompted a downgrade from Wells Fargo & Co. (NYSE:WFC) analyst Timothy Condor, citing falling operating margins. Earlier this week, Warren Buffett (NYSE:BRKA) was asked about his position in P&G and admitted to still being a long-term holder of the stock, but would not answer if he might consider selling shares.
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