Household goods conglomerate Procter & Gamble (PG - Free P&G Stock Report) recently reported fiscal second-quarter earnings (year ends June 30th). Share net increased almost 4% year over year, to $1.08, beating our estimate by three pennies, as revenues came in flat for the December period, falling just shy of the $16.9 billion mark. Investors seemed pleased with this report, as the stock price climbed more than 3% in early-market action.
Procter & Gamble continued to face a difficult operating environment during the second quarter. Even so, it logged solid organic revenue growth across its business lines, thanks in part to stronger distribution channels. What's more, it registered gains in its largest consumer markets (the United States and China). Nevertheless, a recent sale of its Beauty Brands to Coty (COTY), lost sales from its Venezuela-based subsidiaries, and currency headwinds took their toll on the top line.
The company will likely concentrate on supply-chain improvements, increasing productivity, and expense reductions to mitigate the negative impact of geopolitical disruptions, foreign exchange headwinds, and wavering commodity prices. Indeed, we expect Procter & Gamble will continue to strengthen its core brands and business lines in the coming months. These moves ought to bolster margins and help boost profits going forward.
Additionally, P&G has been increasing its marketing and advertising campaigns. And strong branding efforts should help it gain market share. Likewise, innovation and technological enhancements should remain another key priority, as management improves its product roster. Too, Procter will likely beef up its digital and e-Commerce business, to expand its reach.
Even though the company has raised its outlook for organic sales growth, now looking for it to advance by 2%-3% (previous guidance envisioned a 2% increase), headwinds from an unfavorable foreign exchange environment and minor brand divestitures ought to impede much of its progress. Thus, we figure the top line will stay in line with P&G's 2016 tally.
On the other hand, we look for the household goods conglomerate's ongoing restructuring efforts to provide some lift to the bottom line. Profits will likely advance at a mid-single digit clip, to $3.85 a share, for the full year.
In sum, Procter & Gamble has faced a difficult operating backdrop, and saw some top- and bottom-line setbacks in the past few quarters, but we think things are beginning to look up.
This stock holds attractive conservative appeal. The blue chip earns our Highest scores for Safety (1) and Financial Strength (A++). And PG offers an above-average dividend yield, with decent risk-adjusted total return potential over the 2019-2021 span.
About The Company: The Procter & Gamble Company makes detergents, soaps, toiletries, foods, paper, & industrial products. Brands include: Head & Shoulders, Olay, Pantene, SK-II, Wella, Fusion, Gillette, Mach 3, Presobarba, Crest, Oral-B, Vicks, Ariel, Dawn, Downy, Febreze, Gain, Tide, Always, Bounty, Charmin, and Pampers.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
