Household goods conglomerate and Dow-30 component Procter & Gamble (PG – Free P&G Stock Report) issued fiscal second-quarter results (year ends June 30th). The stock did not react much to the news.
Core earnings climbed 14%, year over year, to $1.42 a share, $0.07 ahead of our estimate. Revenues increased 5%, coming in at $18.24 billion, $85 million below our forecast. Unfavorable foreign currency effects, as well as the impact of portfolio adjustments, were drags.
Breaking the report down, P&G registered the strongest organic sales growth in its Beauty segment, driven primarily by product innovation and pricing initiatives. Too, contributions from the addition of the Merck (MRK – Free Merck Stock Report) OTC business boosted Health Care sales. And a positive product mix aided its Fabric & Home Care and Grooming units. Baby, Feminine, and Family Care lagged its other operations, though did make modest progress. Lower diaper sales, as well as a setback in the Japanese market, partially offset the growth of premium products.
The company recorded lower restructuring charges during the quarter. That said, we imagine management will continue to focus on cost-savings measures and improving productivity to offset rising input and operating expenses.
Too, P&G has been dedicated to value creation and capturing market share. Consequently, the conglomerate ought to invest in its brands and products. It will likely ramp up marketing expenditures to better promote its labels. And it is expected to increase research & development spending to spur product innovation. Moving forward, management may eye tuck-in acquisitions to complement its asset roster. Lastly, P&G ought to improve its distribution channels as it has been bolstering its e-commerce arm to take advantage of direct-to-consumer sales.
Meanwhile, Procter & Gamble has been improving shareholder returns through stock buybacks and increasing its dividend program.
Looking ahead, we imagine organic sales will advance between 4% and 5% this year. And lower negative foreign currency effects, as well as benefits from recent acquisitions should bolster total sales growth. As such, we have raised our top-line estimate by $300 million to $70.8 billion, a 5% increase from the year-ago figure. Moreover, we have added a nickel to our share-net estimate, and now look for core earnings to increase nearly 11%, to $5.00 a share in fiscal 2020.
This blue chip stock has had a nice run over the last few years. And the equity's defensive properties should continue to bolster its conservative appeal. Plus, PG has an attractive dividend yield. But, while we anticipate management's ongoing growth measures will support the top and bottom lines over the 2022-2024 pull, much of the capital appreciation we envision over that period is already factored into the recent quotation.
AboutTheCompany: 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.
– Orly Seidman
