Household goods conglomerate Procter & Gamble (PG – Free P&G Stock Report) has issued decent fiscal first-quarter earnings. (Year ends June 30, 2019.) Investors applauded the company's recent operational progress and sent the stock nicely higher in morning trading.
The company posted core earnings of $1.12 a share. Although three pennies short of our estimate, the bottom line grew 3% year over year. Total sales came in at $16.7 billion, in line with the previous-year showing and our expectation. Excluding the impact of foreign currency exchange and portfolio additions and/or deletions, organic sales were up 4%. Moreover, P&G registered low- to mid-single-digit organic sales gains in most of its business categories, save for its Baby, Feminine, and Family Care division. Plus, currency-neutral EPS grew 11% during the September period.
To review, the consumer goods giant faced a rough patch in fiscal 2016, mainly due to an unfavorable foreign exchange environment (which eroded much of the gains from its overseas business). P&G, however, has rebounded nicely in the following two fiscal years, thanks to a wide-scale restructuring program, which included the divestiture of several brands. Sales, on the other hand, have been somewhat sluggish in their recovery. During the latest quarter, though, the company reported its strongest revenue results in the past five years.
Looking ahead, we believe management will stay on course with its strategic growth efforts. Procter will likely try to reduce overhead, and make its organization more efficient. Indeed, supply-chain improvements and productivity enhancements should help bolster margins in the near term. Overall, we believe such moves will offset the negative impact of higher operating expenses and currency fluctuations.
Meantime, P&G will probably focus on strengthening its competitive advantage. To this end, it ought to invest heavily in product innovation and improving the quality of its offerings. Plus, the company may strengthen e-commerce initiatives as a way to extend its distribution network. Lastly, Procter has very strong brand equity and it will likely ramp up its marketing and advertising campaigns to better leverage its name recognition and help it gain market share.
In addition, P&G will probably use some of its cash to reward shareholders. The company has earmarked $5 billion for share buybacks and $7 billion for dividend payments.
We are maintaining our full-year fiscal 2019 estimates. While total sales will likely hold steady this year, share earnings ought to advance at a mid-single-digit clip, to $4.50.
All in all, this blue-chip stock offers healthy risk-adjusted total return potential. We expect that management's aforementioned growth efforts, combined with a better operating environment, will aid P&G in the near term and bolster its prospects over the long haul.
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.
- Orly Seidman
