Berkshire Hathaway(NYSE: BRK-A)(NYSE: BRK-B) isn't quick to sell its stocks. In fact, CEO Warren Buffett's favorite holding period, he likes to remind shareholders, is "forever."
Yet the company just closed its Procter & Gamble(NYSE: PG) position -- over $4 billion worth -- according to its latest 13-F filing. That holding had been large enough to qualify as one of Berkshire's "big four" investments, and has been on its books for over a decade.
P&G shareholders can relax, though. The sale wasn't spurred by the billionaire investor having lost faith in the company. Instead, it was simply a tool by which Buffett could efficiently raise cash to focus Berkshire's position on one piece of P&G's portfolio: Duracell batteries.
From razor blades to batteries
Berkshire's P&G holding came into being in 2005, but not through direct stock purchases. That was the year that Procter & Gamble purchased razor blade titan Gillette, a company that Berkshire owned a significant stake in. Buffett received P&G shares in exchange for his massive Gillette holdings (and booked a nice $5 billion paper gain in the process) as a result of that deal. Procter & Gamble has been one of Berkshire's largest holdings ever since.
That run effectively ended in late 2014 when Buffett struck another deal with P&G to buy its Duracell business in exchange for Berkshire's shares in the greater company. Structuring the transfer this way was classic Buffett: It helped his company save on taxes while establishing ownership of a stand-alone company. Buffett is a fan of equity investments, but prefers to own companies outright. "Our main focus is to build operating earnings," rather than simply achieve growth in the investment portfolio, he has told investors.
See Warren Buffett through the years:
Warren Buffett through the years
Why Warren Buffett just sold his entire stake in Procter & Gamble Co.
Investor Warren Buffett answers reporters' questions during a press conference to announce that Walt Disney will buy Capital Cities/ABC July 31.
Billionaire investor Warren Buffett of Omaha makes a rare public appearance during an autograph session outside Borsheim's Jewelry Store in Omaha, May 4. Buffett was signing autographs for shareholders in his company, Berkshire Hathaway, which is having its annual meeting May 5.
Billionaire businessman Warren Buffett sits with his wife Susan (R) and daughter Susie, prior to the annual Berkshire Hathaway shareholders meeting in Omaha, May 5. This marks a rare public appearance for the reclusive Buffett.
Arnold Schwarzenegger, Republican candidate for governor of California
in the October 7, 2003 recall election listens as world famous
investor, Warren Buffett (L), one of his financial advisors, speaks to
reporters after a meeting of Schwarzenegger's Economic Recovery Council
in Los Angeles August 20, 2003. REUTERS/Fred Prouser
Billionaire financier Warren Buffett looks on after a meeting with U.S. Senator Arlen Specter (R-PA) and chairman of the Senate Judiciary Committee, at the Hart Senate Office Building on Capitol Hill in Washington June 29, 2005. Specter is the co-author of a bill seeking to create a $140 billion asbestos compensation fund. REUTERS/Shaun Heasley SH/TC
Billionaire Warren Buffett arrives at the Sun Valley Resort in Sun Valley, Idaho July 10, 2007. The world's biggest media chiefs gather this week at the 25th annual Allen & Co. conference at the resort starting today. REUTERS/Rick Wilking (UNITED STATES)
Warren Buffett, chairman and CEO of Berkshire Hathaway, speaks at a Senate Finance Committee hearing about "Federal Estate Tax: Uncertainty in Planning Under the Current Law" on Capitol Hill in Washington, November 14, 2007. Billionaire Buffett warned of widening U.S. income disparity and endorsed the estate tax as a check on wealth accumulation, while two senior lawmakers said they want the tax repealed. REUTERS/Jason Reed (UNITED STATES)
Billionaire financier and Berkshire Hathaway Chief Executive Warren Buffett greets shareholders during the Berkshire Hathaway Annual Shareholders meeting in Omaha, Nebraska May 3, 2008. REUTERS/Carlos Barria (UNITED STATES)
Billionaire investor Warren Buffett laughs as he appears with Microsoft Corporation founder Bill Gates for a town hall style meeting with business students broadcast by financial television network CNBC at Columbia University in New York, November 12, 2009. REUTERS/Mike Segar (UNITED STATES BUSINESS)
Berkshire Hathaway Chairman Warren Buffett kisses his ukulele at the Berkshire Hathaway annual meeting in Omaha May 1, 2010. Buffett played "I've Been Working on the Railroad." REUTERS/Rick Wilking (UNITED STATES - Tags: BUSINESS TRANSPORT)
Billionaire financier and Berkshire Hathaway Chief Executive Warren Buffett (L) and Microsoft founder Bill Gates gesture at the national launch ceremony for the BYD M6 vehicle in Beijing September 29, 2010. Chinese battery and car maker BYD, backed by Buffett, launched its first premium multi-purpose vehicle (MPV) in Beijing on Wednesday to tap rising demand in the world's biggest auto market. REUTERS/Jason Lee (CHINA - Tags: TRANSPORT BUSINESS)
Billionaire Warren Buffett, wearing a traditional tikka or a red mark on the forehead, speaks during a news conference in Bangalore March 22, 2011. Buffett on Tuesday said he is looking to invest in large countries like India, China and Brazil, but added that restrictions on foreign ownership in India's insurance industry could be a deterrent. Buffett also said and the U.S. economy was improving and that the devastating earthquake in Japan would not hurt global growth. REUTERS/Stringer (INDIA - Tags: BUSINESS)
Berkshire Hathaway Chairman Warren Buffett tours the floor of the New York Stock Exchange September 30, 2011. REUTERS/Brendan McDermid (UNITED STATES - Tags: BUSINESS)
Berkshire Hathaway chairman Warren Buffett holds his hand over his heart during the singing of the national anthem, at the start of a 5km race sponsored by Brooks Sports Inc., a Berkshire-owned company, in Omaha May 5, 2013, a day after the company's annual meeting. Buffett at the meeting on May 4, 2013 gave the most extensive comments to date about the future of Berkshire Hathaway Inc after he is gone, saying he still expects the conglomerate to be a partner of choice for distressed companies. REUTERS/Rick Wilking (UNITED STATES - Tags: BUSINESS SPORT ATHLETICS)
Warren Buffett, Chairman of the Board and CEO of Berkshire Hathaway, poses for a portrait in New York October 22, 2013. REUTERS/Carlo Allegri (UNITED STATES - Tags: BUSINESS)
Roberta Buffett Elliott sits with her brother Warren Buffett as they attend an announcement ceremony at Northwestern University in Evanston, Illinois, January 28, 2015. The sister of financial investor Warren Buffett has given Northwestern University more than $100 million to create the Roberta Buffett Institute for Global Studies, the largest single gift in the school's 164-year history, the university said on Wednesday. REUTERS/Jim Young (UNITED STATES - Tags: BUSINESS EDUCATION SOCIETY)
Warren Buffett, chairman and CEO of Berkshire Hathaway, speaks at the Fortune's Most Powerful Women's Summit in Washington October 13, 2015. REUTERS/Kevin Lamarque/File Photo
Warren Buffett, chairman and CEO of Berkshire Hathaway, smiles before speaking with Bill Gates (not pictured), at Columbia University in New York, U.S., January 27, 2017. REUTERS/Shannon Stapleton
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Should investors sell too?
Though Buffett's sale wasn't connected to P&G's operating trends or valuation, it's worth considering whether investors should follow his lead and sell the stock. After all, the consumer goods giant hasn't managed significant growth in over two years. Sales are down due to a combination of weak organic growth, foreign currency headwinds, and a portfolio divestment initiative that has trimmed its down to 65 brands from 166 three years ago. Profits are on course to decline for their second straight fiscal year, and income investors just received their smallest dividend raise yet.
On the other hand, Wall Street is getting more optimistic about the business, judging from the stock's rising price. P&G's huge cost-cutting initiative is pulling profitability higher. As a result, returns to shareholders (in dividends and stock buybacks) are increasing as it posts a near-record level of cash flow generation. Meanwhile, there are a few bright spots in its portfolio such as Tide detergent and Pampers diapers that management believes illustrate the path toward healthier growth over the coming years.
The brand shedding process is almost complete, too. If all goes to plan, the resulting company will be smaller, at about 85% of the prior revenue mark, but more profitable, with roughly 95% of past earnings.
P&G should also be able to grow more quickly from that point forward -- assuming executives were right in selecting which brands to keep and which product lines, like Duracell, to walk away from.
If you lack faith in P&G's transformation plan, then you might want to sell your shares now. Just don't exit the stock simply because Warren Buffett did. He was able to roll his P&G holdings into another consumer product bet under extremely favorable terms -- which isn't an option that's available to non-billionaire investors.
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