Consumer goods conglomerate Procter & Gamble (PG – Free Procter & Gamble Stock Report) released fourth-quarter and full-year fiscal 2017 results (year ended June 30th) this morning. Although much of the report was better than expected, the stock did not move much on the news.
Core earnings increased 8% to $0.85 for the quarter, and 7% to $3.92 for the fiscal year, beating our estimates by two pennies. Revenues, on the other hand, were relatively unchanged, coming in at $16.1 billion and $65.1 billion, respectively (about $7 million ahead of our forecast). The continued negative impact of unfavorable foreign exchange headwinds erased most of the benefits from better shipment volumes and organic sales growth during the final quarter. Likewise, minor brand divestitures (completed earlier this year) further hurt the top line.
Nevertheless, the company made progress on several fronts, helping to boost profitability. Indeed, restructuring efforts are well under way. Meanwhile, P&G's campaign to simplify and strengthen its portfolio, has led to productivity improvements and helped drive cost savings, offsetting rising operating costs. In all, management aims to reduce expenses by roughly $10 billion over the next five years.
Looking ahead, Procter & Gamble is expected to continue to employ similar initiatives. As such, we think productivity improvements will build over the course of next year. Meantime, it is likely that the company will continue to invest in its core brands. All told, we look for core earnings to trend upward at an upper-single-digit clip, tallying $4.20 a share for all of fiscal 2018. Revenues should begin to rebound next year, too, and ought to increase about 2% to $66.5 billion.
Readers should also note that P&G has been facing rising pressure from activist investor Nelson Peltz of Trian Partners, which has led to fears that the conglomerate would face a proxy battle. During his review of earnings, CEO David S. Taylor reiterated that P&G's management team and board of directors are confident that the right plan in place and expects that the better-than-expected June-quarter earnings report and favorable outlook should help alleviate concerns about a potential shake up.
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.
