Activist investor Nelson Peltz, through his Trian Partners firm, recently acquired roughly 1% of Procter & Gamble.

Peltz wants Procter to reorganize into a holding company with three separate businesses—beauty, grooming and healthcare; fabric and home care; and baby, feminine and family care. He also wants the company to hire more executives from outside of the organization in order to spur the development of new products.

Procter has rejected these proposals. It feels its current restructuring plan, including selling its weaker brands, will continue to boost its profitability.

Peltz now wants to place himself on Procter’s board of directors at the annual meeting on October 10, 2017. Whatever the outcome, his ongoing involvement continue to draw investor attention to Procter’s improving long-term prospects.

PROCTER & GAMBLE CO. $91 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 2.6 billion; Market cap: $236.6 billion; Price-to-sales ratio: 3.6; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.pg.com) is one of the world’s largest makers of household and personal-care goods. It began operating in the U.S. in 1837 and now sells its products in over 180 countries. Overseas markets account for 55% of its total sales.

The company has five main business lines: fabric and home-care products such as Tide laundry detergent (32% of fiscal 2017 sales, 27% of earnings); baby and family-care goods, including Pampers diapers (28%, 25%); beauty items such as Head and Shoulders shampoo and Olay cosmetics (18%, 19%); health-care items such as Crest toothpaste (12%, 13%); and grooming products, including Gillette razors (10%, 16%). Wal-Mart accounts for 16% of the company’s sales.

In the past few years, Procter has streamlined its operations, mainly by selling its less-important brands. It now has about 65 brands, down from 170 in 2013.

A big part of that plan was last year’s sale of 41 beautyproduct brands to Coty Inc. (New York symbol COTY). They include Wella, Clairol, Max Factor and CoverGirl.

Under the terms of the deal, Procter shareholders had the option of exchanging some or all of their shares for Coty shares. Only those Procter investors who opted to participate received Coty shares. The transaction also let investors defer capital gains taxes.

Under the terms of the offer, participating shareholders received 3.0933 shares of a Coty share for each Procter share tendered. That means they got roughly $1.042 worth of Coty shares for every $1.00 in Procter shares. As a group, Procter investors now own 52% of the combined firm. Procter itself realized a $5.3 billion after-tax gain on the transaction.

Focusing on fewer brands should pay off

Due to its smaller size, Procter’s overall sales declined 22.7% from $84.2 billion in 2013 to $65.1 billion in 2017 (fiscal years end June 30).

Earnings before unusual items improved 3.0%, from $11.9 billion in 2013 to $12.2 billion in 2014. Procter is an aggressive buyer of its shares. Due to fewer shares outstanding, per-share earnings rose at a faster pace of 4.2%, from $4.05 to $4.22.

Earnings then dropped to $4.02 a share (or a total of $11.5 billion) in 2015, and to $3.67 a share (or $10.4 billion) in 2016. Earnings rebounded to $3.92 a share (or $10.7 billion) in 2017.

Procter has begun to see the benefits of its restructuring plan, which includes closing plants in North America and shifting production to larger facilities. From fiscal 2012 through 2016, that plan saved it a total of $10 billion.

The company now aims to save a further $10 billion by the end of fiscal 2021, partly by consolidating its plants in Europe.

Procter has also cut its spending on advertising and marketing. It totalled $7.1 billion (or 10.9% of sales) in fiscal 2017. That’s down 1.7% from $7.2 billion (or 11.1%) in 2016. The decrease is partly because the company has begun to shift from traditional TV and print ads to more effective online ads and in-store promotions.

Those savings will help free up cash it can use to launch innovative new products. In both fiscal 2017 and 2016, Procter spent $1.9 billion (or 2.9% of its sales) on product development.

New recycling technology has strong potential

Thanks to those outlays, Procter has developed a new technology that improves the quality of recycled plastic. That will let it use more recycled material in its packaging, which would help it comply with increasingly stringent environmental regulations. Right now, recycled materials account for just 2% of its packaging needs.

The company’s sound balance sheet will support its current strategy. As of June 30, 2017, its long-term debt was $18.0 billion, or just 8% of its market cap. It also held cash and investments of $15.1 billion.

Procter recently increased its dividend by 3.0%; the new annual rate of $2.76 a share yields 3.0%. The company has paid dividends continuously since 1890 and has raised the annual rate each year for the past 61 years.

In fiscal 2017, Procter’s dividend payout totalled $7.0 billion. That’s equal to 71.8% of its free cash flow (regular cash flow less capital expenditures) of $9.8 billion. It also means the company has room to keep increasing the payout and buy back its shares.

Stock up 6% due to Trian’s pressure

In fiscal 2018, the company’s earnings will probably rise to $4.17 a share. The stock, which has gained 3% since Trian first disclosed its investment in February 2017, now trades at 21.8 times that estimate. That’s a reasonable p/e in light of Procter’s well-known brands. Trian’s ongoing pressure should also continue to spur the stock.

Procter & Gamble is a buy.