Could P&G Sell off Iams and Eukanuba Pet Foods Next?

by Trefis Team
-10.07%
Downside
78.16
Market
70.29
Trefis
PG
Procter & Gamble
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Procter & Gamble (NYSE:PG) recently sold Pringles, its well known brand and the last remaining food brand in its portfolio. P&G is the world’s leading personal and household care products’ company followed by Unilever (NYSE:UL), Colgate-Palmolive (NYSE:CL) and Kimberly-Clark (NYSE:KMB). Given the company’s recently sales, we believe that the company could look to shed other non-core brands like Iams and Eukanuba brands of pet foods.

We value P&G with a $68.41 Trefis price estimate of its stock, at roughly 15% premium to its current market price.  Here we explore why selling Iams and Eukanuba pet food brands makes sense.

Pet Foods have a very low contribution to P&G’s stock

Iams and Eukanuba together contribute a mere $1.6 billion to P&G’s total sales that exceed $80 billion and account for under 3% of our price estimate so are clearly not a large focus for the company. Branded pet foods also face stiff competition from private labels and regional brands, which are cheaper and cater to local preferences.

With the divestiture of Pringles, P&G’s dependence on agricultural inputs has also declined considerably. The pet foods segment is now the only product segment within P&G’s portfolio that sources raw materials directly from agriculture and hence loses out on economies of scale from sourcing higher volumes with other food brands.

While P&G pet foods are readily available in supermarkets, they do warrant specialty distribution through pet stores and by veterinarians in order to maintain market share. These distribution and sourcing channels do not always overlap with P&G’s other products and so Iams and Eukanuba P&G’s portfolio could be a better fit for another company.

What could be the way out?

Iams and Eukanuba have a very established brand name in pet foods and P&G could leverage this to offload these brands to either a company focused on pet care (pet foods, medicines and products) or to a company selling packed dry foods.

You can see a detailed analysis of our $68.41 Trefis price estimate of Procter & Gamble’s stock here.

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