Morningstar Ratings | Company Name: Procter & Gamble Co

Corp Tree

Company Ratings

12/18/2018 Affirmed Procter & Gamble Co AA Stable

Debt Classification Ratings

Individual Debt Classification Ratings

Hide All

Ratings Actions

Show History
Date
Ratings Actions Title
Asset Class
12/18/2018 Procter & Gamble Co Updated Rating Corporate

Credit Ratings Analysis

Morningstar's Credit Ratings is setting new standards for Corporate and Financial Institutions ratings. Our organization is committed to investor demand for a more rigorous and transparent ratings methodology and we encourage an active investor dialogue with our analytical team.

Credit Perspective
Published On : 12/18/2018

P&G’s credit rating is derived from the cash flow generated by the company’s global leadership in the household and personal-care products sector and a moderate use of financial leverage. P&G’s portfolio consists of 21 brands that each generate over $1 billion of revenue per year and another 11 brands that generate over $500 million in annual sales. P&G’s vast economies of scale and dominant market positions produced by the intangible assets of its branded portfolio have resulted in the assignment of a wide economic moat by Morningstar’s Equity Research Group. Although P&G operates as the leading player in the worldwide household and personal-care category, it is not immune to aggressive competition, private-label incursions, and at times changing and lackluster consumer spending.

P&G continues to report financial and operational improvement indicative of the success of its restructuring program. The company has 65 brands that accounted for more than 85% of its top line and 95% of its profit. The company is in the midst of a five-year (FY 2017-22) $10 billion multi-year productivity and cost saving plan that is expected to lead to the optimization of its supply chain and manufacturing process and improve its margins and cash flow. P&G has a long track record of operating with high interest coverage and moderate leverage. We project leverage will average 2.0 times over our five-year forecast period and interest coverage will exceed 20 times. Although leverage is high for the rating category, P&G’s benefits from minimal Business Risk and a strong Solvency Score and a very strong Distance to Default score, which supports our credit rating. P&G’s Cash Flow Cushion ratio is moderate for its credit rating due to substantial CP and debt maturities within the forecast period, which represent 65% of the firm’s debt; however, based on P&G's substantial liquidity and robust free cash flow generation, we believe it will have no difficulty managing its debt portfolio.

Capital Structure
Published On : 12/18/2018

At Sept. 30, 2018, P&G total debt was $31.3 billion including $10.5 billion of short-term debt, which we estimate that a significant portion was commercial paper. P&G’s maturities are estimated as follows: $2.6 billion in 2020, $2.0 billion in 2021, and $16.2 billion thereafter. These maturities are manageable considering the company’s liquidity, which totals $11.2 billion, composed of $2.5 billion of cash and cash equivalents and $8.7 billion of investments available for sale, at period-end. Financial flexibility is provided by the company’s $8.0 billion of credit facilities, which is split between a $3.2 billion five-year facility that expires in November 2022 and a $4.8 billion 364-day facility that expired in November 2018 that we believe was renewed. The credit facilities also support P&G’s commercial paper program. P&G issued euro 2.1 billion of senior notes in multiple tranches in October, which we believe the proceeds was used in part to finance the company’s $3.9 billion acquisition of Merck KGaA over-the-counter healthcare business in November. The acquired business had approximately $1.0 billion of revenue that was generated in Europe, Latin America, and Asia.

P&G’s other material obligation include its defined pension benefit plan, which was underfunded by approximately 28% or $4.4 billion at fiscal year-end. Trailing 12 months total debt/adjusted EBITDA was 1.8 times, EBITDA/interest was 33 times and free cash flow (cash flow from operations less capital expenditures and dividends) was $3.8 billion. P&G’s management has articulated that it intends to deliver another year of 90% or better cash flow productivity and accordingly expects to pay nearly $7 billion in dividends and to spend $5 billion on share repurchase in fiscal year 2019. Beyond reinvesting in the business, we expect that dividend payments will remain a top priority of cash, and we forecast mid- to high-single-digit dividend increases during the near to intermediate term.

Credit Notes

Show History
Date of Credit Note
Credit Note Title
Credit Note Type

Reports

Date
Title
Report Type

Regulatory Disclosures

Rule 17g-7(a) of the Securities Exchange Act of 1934 requires that certain disclosures be made when a credit rating action is taken. In this context a credit rating action is considered (1) a publication of an expected or preliminary credit rating assigned to an obligor or security before the publication of an initial credit rating; (2) an initial credit rating; (3) an upgrade or downgrade of an existing credit rating; and (4) an affirmation or withdrawal of an existing credit rating if the affirmation or withdrawal is the result of a review of the credit rating assigned to the obligor or security using the firm’s applicable procedures and methodologies for determining credit ratings.

JavaScript and Cookies need to be enabled to show the full capabilities of the Morningstar Credit Ratings website.
Turn on switch to see debug info.
JavaScript and Cookies need to be enabled to show the full capabilities of the Morningstar Credit Ratings website.
JavaScript and Cookies need to be enabled to show the full capabilities of the Morningstar Credit Ratings website.