Financial and operational comparison of Procter & Gamble and Johnson & Johnson

Procter vs. J&J

Procter & Gamble and Johnson & Johnson are very similar a lot of tangible ways. The major similarities include the fact that they are both sellers of common and widely used consumable products, they are both mainstays of the corporation scene in the United States and neither one of them has ever had any major systemic issues since their founding. Even so, there are some notable and real differences between the two firms relative to what they do, how they do it and how well they have done it over the years. This report will focus on all of that to at least some degree.

Profiles

As for general profiles of the two major companies in question, here are the basics for each. Procter & Gamble has been around since 1837 and was founded in Ohio. They sell products or directly operated in 180 different countries around the world. The current P&G CEO is Robert McDonald. The have a sterling reputation with the Institutional Shareholder Rights collective, with a score of "Low" concern relative to auditing, the Board of Directors, their compensation framework and the rights of the company's shareholders. As of the writing of this report, P&G employers a total of roughly 126,000 employees. They remain headquartered in Cincinnati to this very day. P&G's staple products include shampoo (Head and Shoulders, Pantene, etc.) shavers (Braun, Gillette, etc.), laundry supplies (Downy, Febreze, etc.), battries (Duracell), toilet paper (Charmin), and diapers (Pampers). At the top level, P&G is classified as a personal products company (Yahoo, 2012).

As noted in the introduction, Johnson and Johnson is not all that dissimilar. J&J was founded about a half century after (1886) than P&G and they were fonded (and remain headquartered in) the New Brunswick, NJ area. The consumer segments that Johnson and Johnson focuses on are notable different from P&G, but there are noticeable differences. Johnson's products are largely limited to the pharmacy and cosmetics strain. Brand names of Johnson and Johnson include Aveeno, Listerine, Lubriderm, Band-Aid, Neosporin, Tylenol, Sudafed and Zyrtec. One major outlier to that is their Splenda, which is a sugar substitute. That being said, they do share some common threads with P&G including products similar to P&G offerings such as baby products. In short, both of these companies have established footholds in the consumables industries but each has carved out its own different niches in that overall market. J&J has about 118,000 employees and is technically classified as a drug manufacturer (Yahoo, 2012).

Competitors

Even with being fairly similar companies, these two conglomerates do not really directly compete with each other. Johnson & Johnson competitors are mostly biotech giants (Amgen Inc., Genentech Inc., Merck, Teva, etc.) and generic drug makers (Pfizer, Novartis, Roche, AstraZeneca, etc.). P&G's competitor list does technically include Johnson & Johnson but also includes Kimberly-Clark Corporation and Unilever (the latter of which is not publicly traded). Procter and Gamble and Johnson, in addition to sharing very similar employee headcounts, also come close to having the same market caps with both businesses clocking in at just under $200 billion USD (Yahoo, 2012).

Financial Statements

The innate differences between these two companies become clear when comparing financial statements. Despite having fairly close headcounts (within 10k of one another), Procter is noticeably higher in terms of revenue. Over the last three years, Procter has climbed from $77.5 billion (2010) to $83.6 billion. Net income for those three years actually fell over the same period, in both percentage and absolute dollars, going from $12.7 billion (2010) to $10.7 billion (2012). Johnson & Johnson was flat revenue-wise from FY 2009 to 2010, with both years clocking in at about $61.5 billion each year. However, that total noticeably rose to $65 billion for FY 2011. Net income rose slightly from $12.2 billion to $13.3 billion from 2009 to 2010 and then fell noticeably to under $10 billion ($9.6 to be precise) for 2011. The year mismatch above is due to the companies' fiscal years ending at different points (Yahoo, 2012).

Both companies are doing quite well in terms of cash flow and both are trending upward. Procter was in the high $2 billion range in 2010 and 2011 but rose sharply to $4.4 billion in 2012. Johnson has steadily been going up the last three full fiscals, going from $15.8 billion (2009), then $19.3 billion (2010) and then $24 billion (2011). Obviously, even with the improvements for both, Johnson is much more cash-rich. Accounts payable balances for both firms have stayed in the $15 billion to $16 billion range consistently for the last three fiscals, so Johnson has the clear advantage there given that they have the same amount of accounts payable with less revenue than Procter (Yahoo, 2012).

In looking at the actual cash flow statement, Johnson also has a clear advantage there in terms of how much their cash (or cash equivalents) figure is going up or down. Johnson has grown every year over the least three. The amounts have varied a bit (from $3.5 billion to $5.2 billion) but they're definitely going singular direction. Procter, on the other hand, is decidedly mixed in that their only gain during the three years was only $1.6 billion (2012) and they took a loss in cash flow of more than two billion for the other two years and roughly 95% of that (more than $1.9 billion) was in 2009 (Yahoo, 2012).

Ratios & Stats

As for the ratios and how they compare between the two companies, a complete "apples to apples" analysis is not completely possible since they do not share the same fiscal, but there are some key ratios that can be compared. Johnson has an overall profit margin of nearly 13% whereas Procter is a bit lower at 12.7%. Procter has a forward PE ratio of 16.33 whereas Johnson's is 12.86. Johnson has a return on assets of 9.19% and a return on equity of 13.03%. The same figures for Procter are 7.33% and 14.05%, so neither firm is a clear winner on those two metrics combined. The current ratio for Procter is 0.97 where it is 1.87 for Johnson. Debt equity ratio is 26.43 for Johnson and 49.08 for Procter, something lightly inferred above with the fact that both firms have similar accounts payable balances despite being at very different revenue numbers.

Conclusion

In conclusion, it is clear that both companies compared in this report are both doing quite well on the whole and there is little to no danger that their status in this country (or the greater global market) is in any danger of subsiding, at least in the near-term. Procter is the superior company but Johnson is better in several important regards, as noted throughout this report. The author of this paper predicts prolonged continued success for both companies and both will continue to expand their reach in their respective niches of the consumables industry. The question will be which one (if not both) tries to branch out a bit and how/when that will manifest itself (Yahoo, 2012).