P&G’s growth is now tied to delivering value

Procter & Gamble (NYSE: PG) has been busy slashing prices and realigning its product portfolio to compete a bit more on a value platform. In this tough economy, though, that hasn’t been enough to drive big growth.

In the company’s recently reported first quarter, sales fell 6 percent over year-ago levels to $19.8 billion, due mostly to a stronger dollar. But organic sales, which exclude currency effects, rose 2 percent. Earnings per share grew by 3 percent. Notably, both the top- and bottom-line numbers showed sequential growth.

Of course, it’s always nice to see that a company can lift revenue by price increases. But fundamental business health is marked by growth in volume, and on an organic basis, P&G sold 2 percent fewer products. (Remember, though, that its total revenue still grew.) Most of the volume decline was driven by softness in developing and emerging markets, where the company increased prices to bolster profit margins.

In recent years, these corners of the globe have been the Holy Grail for global consumer-goods companies, with rising middle classes fueling sales growth. P&G’s price increases, however, seem to have turned away some of these otherwise eager consumers.

Procter & Gamble may not deliver industry-beating growth in the near-term, but its apparent new focus on consumer value and product innovations could lead to some well-groomed profits down the road.

Ask the Fool

Q: What do venture capitalists do? – A.N., West Hills, Calif.

A: Partners in venture capitalist (“V.C.”) firms pool their money and invest in fledgling companies, sometimes specializing in certain industries or areas, such as computer-related technology or biotechnology.

Venture capitalists typically enter the scene well before a company gets to the initial public offering (IPO) stage. They help the firm grow, usually in exchange for a large percentage of the company, and they offer guidance, as well. The hope is that once the company grows to a certain point, it will go public and the venture capitalists can cash out, making a very tidy profit.

Many companies, such as Amazon.com and Federal Express, have benefited from venture capital.

Q: I recently looked at one of my sister’s mutual funds. Its top holdings include some solid dividend-paying companies, and that left me wondering, “Where do those quarterly dividends go?” Do the companies pay those dividends to the mutual fund managers? – M.F., online

A: When a mutual fund owns shares of a dividend-paying stock, the dividends paid belong to the shareholders, not the fund managers. Typically, when you first plunk some money into a fund, you’ll be asked to specify whether you’d like to receive the dividends as cash payments or have them reinvested in additional shares of the fund.

After a fund receives dividends and before it distributes them to shareholders, the dividends’ value is added to the fund’s net asset value (NAV). Later, the NAV is reduced to reflect the departure of the dividend sum. So don’t be alarmed if you see a fund suddenly drop in value one day — it might simply be that a big distribution was made.

My dumbest investment

Circa 1999 or 2000, I purchased stock in EMC Corp. for around $55 per share and watched it soar to roughly $100. Not knowing when to sell and not sticking to a plan (I was both greedy and emotional), I ended up selling somewhere in the $15 range. Since then I have not seen EMC even close to those high prices. It still haunts me to this day. – M.D., online

The Fool Responds: If you bought in the summer of 1999, you would have seen your shares almost triple in value in less than a year – before EMC sank more than 95 percent from its all-time high. Greed wrecks many investors, as it has us hanging on to big winners, hoping for even more outlandish gains.

We need to put aside greed (and fear) and assess our holdings objectively. A great company can still have grossly overvalued stock that’s more likely to fall closer to its fair value than it is to keep rising. When a stock gets way ahead of itself, it’s smart to move that money into something undervalued.