Household goods conglomerate Procter & Gamble (PG – Free P&G Stock Report) issued fiscal first-quarter results. (Years end June 30th.) The company began the year on relatively good footing. Revenues inched up 1% from the same period last year, to $16.7 billion, and core earnings climbed 6%, to $1.09 a share, both roughly on par with our estimates. We think the company will continue to rebound as the year proceeds.
Even so, investors weren't heartened by the modest recovery, and the stock price was down slightly in early morning trading.
The equity's price fluctuations may be a result of the recent proxy fight. P&G faced pressure from activist investor Nelson Peltz of Trian Management. Mr. Peltz fought, but narrowly lost, a seat on the board of directors. Even though the proxy fight is over, concerns regarding the company's stagnant top line or future prospects may echo in the minds of its investors. Management reiterated the potential of its restructuring efforts and business strategy, but did not comment on the recent proxy fight.
Indeed, the consumer goods maker had been especially hard hit by unfavorable currency headwinds over the past couple of years. (The strength of the U.S. dollar eroded much of the benefits from the company's overseas markets.) And P&G has been hard at work to reinvigorate its limp top line.
P&G will likely continue to restructure its business. Last year, streamlining efforts took center stage, as the company sold or divested several operating segments. Looking ahead, management ought to focus on productivity improvements, including the redesign of its supply chain, and other cost controls. Meanwhile, incremental price hikes may also help boost revenues. Too, the company may face higher input expenses in the short term, as recent weather-related events impact supply costs or commodity prices, and these moves should help alleviate margin pressures.
The company is trying to capture market share. It has invested in its brands and is widening its footprint overseas. P&G will likely invest in innovation and launch new products. Moreover, e-commerce, which currently accounts for 5% of the top line, soared 40% over the period, and the company should continue to expand its online distribution network to extend its market reach.
For now, we are maintaining our fiscal 2018 estimates. For the full year, we think core earnings will grow about 7% year over year, to $4.20 a share (at the higher end of the company's guidance). Revenues may eke out a 2% advance, coming in at $66.5 billion this year.
All told, P&G stock may continue to hit a few bumps in the road in the coming quarters, as management implements the aforementioned improvements. Nonetheless, we think the blue chip stock offers decent long-term risk-adjusted total return possibilities, for those willing to shoulder some pricing fluctuations in the near term.
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.
