Household goods conglomerate Procter & Gamble (PG – Free P&G Stock Report) has issued fourth-quarter and fiscal 2018 results (year ended June 30th). Even though the company registered solid totals, revenues came in below expectations. Still, the stock price was up a bit in early morning trading.
Overall, the company closed the year on a good note. Sales climbed 3% for both the period and the full year, coming in at $16.503 billion and $66.832 billion, respectively. (We had anticipated sales of approximately $16.7 billion and $67.0 billion.) A better foreign exchange environment countered the negative impact of some of the merchandising efforts and lower pricing initiatives.
Core earnings advanced 11% and 8%, to $0.94 and $4.22 per share, respectively, three pennies ahead of our estimates. (Diluted earnings per share were down roughly 12% due to restructuring and debt extinguishment charges.) A lower tax rate and wider margins aided the bottom line. Plus, ongoing stock buybacks helped boost per-share comparisons.
Over the past few months, Procter & Gamble has focused on capturing market share and bolstering organic sales. Branding efforts and product innovation have helped widen its reach. And merchandising investments, including things like packaging enhancements, should help it gain shelf space. Plus, e-commerce initiatives are ramping up nicely. Online sales grew about 30% over the past year and composed about 7% of the top line.
At the same time, management has also been driving productivity improvements and reducing operating costs. The recent restructuring (including asset sales), and emphasis on slashing overhead costs should better position the household goods manufacturer for the long haul.
Looking ahead to fiscal 2019, P&G may experience some headwinds in the first few months of the year, so we think much of the top- and bottom-line gains will take place in the back half. Higher commodity costs, the impact of acquisitions or divestitures, and wavering foreign currency exchange rates, ought to be countered by pricing initiatives (the company will likely institute incremental price increases across most of its product lines), and productivity savings. In all, sales will probably inch ahead 1%, to $67.5 billion, while core earnings gain about 5%, coming in at $4.45 per share.
Procter & Gamble has had a tough go over the past few years, as the strength of the U.S. dollar eroded some of the gains from its overseas markets, and asset divestitures hurt the top line, as well. Nevertheless, we believe management's aforementioned efforts helped bolster its fiscal 2018 performance, and should support near-term growth.
The stock, however, also experienced some turbulence of late, and is down just over 10% since the year began, Even so, the blue chip offers worthwhile capital appreciation potential over the coming 3 to 5 years. What's more, income-oriented investors may be tempted by PG's good risk-adjusted dividend yield and total return appeal.
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
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
