Proctor & Gamble (NYSE:PG) is trying the olde school trick of slow pay to eek out more cash from operations. Currently they are paying around 45 days and are looking to extend to 75-100 days. According to Morning Ledger at WSJ CFO Journal many other comparable companies are doing it. Expectations are they will free up some $2 Billion in cash.
Why there has to be a reason. The market cap is around $218 Billion. The move may generate about 1% of market cap. Big deal. But is P&G getting a case of the shorts.
Working capital is about 1:1. not outstanding.
Short term debt last report was $9.8 Billion, payables $7.2 billion. If you believe interest rates are going up and you have to figure short-term debt is floating the more you pay down the better. Long term debt clocks in at $23.6 Billion which is 10% of your market cap.
But take a look at the share re-purchase levels. In the past twelve months they have spent billions repurchasing their shares..
The stock is trading near both its 52 week high and five-year high. management wants to do something to break to the upside. The short position is about 0.78% of the float and has seen substantial short covering of late. This bullish catalyst is diminishing.
The dividend has just been increased by 7%. P&G has a 123 year uninterrupted history of dividend payment. The last 57 years have seen constant increases. Everyone who is a dividend oriented investor already owns the shares. No radical new buying demand is expected.
So they have to stick it to their suppliers. Their suppliers may offer terms for early pay which out weigh dragging payments. There is a sanctimonious comment about helping suppliers find financing. Come on if you have Proctor & Gamble on your receivables list the bank has lent you money.
But quite frankly classic financial analysis frowns heavily on companies who drag out their payables. Ultimately its a sign of financial weakness not strength.
Dividend investors are better served with improving margins, improving market shares, new product launches, product extensions, accretive acquisitions, pricing power. You know stuff like that. Sticking it to your suppliers. Meh!
George Gutowski writes from a caveat emptor perspective. I probably use some of their products like soap and don’t even know it.