It has been about a month since the last earnings report for Procter & Gamble Company (The) PG. Shares have added about 7.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Procter & Gamble Q1 Earnings & Sales Top, View Intact
The Procter & Gamble Company’s first-quarter fiscal 2017 earnings and revenues exceeded expectations. P&G’s fiscal first-quarter adjusted earnings of $1.03 per share beat the Zacks Consensus Estimate of $0.98 by 5.1%. The bottom line also increased 5% from the prior-year quarter. Currency-neutral core EPS per share improved 12% on higher volumes.
Sales in Details
P&G’s reported net sales of $16.52 billion that beat the Zacks Consensus Estimate of $16.46 billion by 0.4%. The top line, however, remained unchanged year over year. Foreign exchange had a negative impact of 3% on sales.
Organically (excluding the impact of acquisitions, divestitures and foreign exchange), revenues grew 3% on the back of a 3% increase in organic shipment volumes.
All the five business segments recorded organic sales growth. Health Care and Fabric & Home Care segments reported 7% and 4% growth, respectively, in the fiscal first quarter. Beauty and Grooming segments witnessed 3% organic sales growth, whereas Baby, Feminine & Family Care segment reported 2%.
In developing markets, organic sales were up 6% on 3% volume growth, as the pricing osted the top line. On the other hand, in developed markets, organic sales were up 2% on 4% volume growth, reflecting heightened promotional activity in part to address price gaps in certain categories.
Segment Discussion
Beauty: This segment declined 1% year over year to $2.99 billion due to currency headwinds. Foreign exchange hurt revenues by 2%, while acquisitions/divestures/Venezuela deconsolidation had a 1% positive impact on sales. Organic sales grew 3% driven by positive pricing and higher volumes. Price was up 1%, while mix was up 1%. Organic volumes rose 2%.
Skin and personal care gained with demand for the SK-II brand, and hair care was higher due to Pantene and Head & Shoulders (partly offset by declines for smaller brands).
The segment’s net earnings declined 5% to $592 million.
Grooming: Grooming was down 1% to $1.7 billion. Currency had a 3% negative impact on revenue growth, while acquisitions/divestures/Venezuela deconsolidation contributed 1% to sales. Organic sales rose 3% driven by higher pricing and volumes.
Price increases added 1% to revenue growth. Organic volumes rose 3% while mix had a neutral impact.
The segment’s net earnings rose 6% to $415 million.
Health Care: Healthcare products rose 4% to $1.9 billion. Currency had a negative impact of 3% on sales, while acquisitions/divestures/Venezuela deconsolidation had a neutral impact. Organic sales rose 7% on the back of higher pricing and volumes.
Price grew 1%, mix climbed 1% while organic volume rose 5%. Personal health care grew at a double-digit rate with innovation and pricing, and oral care benefited from development in Oral B brushes and paste.
The segment’s net earnings inched up 1% to $320 million.
Fabric Care and Home Care: The segment increased 1% to $5.3 billion. Currency had a negative impact of 2% on sales, while acquisitions/divestures/Venezuela deconsolidation had a 1% positive impact. Organic sales rose 4% on higher organic volumes. While price declined 1%, mix improved 1%. Organic volumes rose 4%.
Fabric care was higher in developed markets with investments in innovation and marketing, and home care expanding at mid-single digits globally.
The segment’s net earnings declined 3% to $728 million.
Baby Care, Feminine and Family Care: The segment declined 1% to $4.6 billion due to currency headwinds of 3%. Acquisitions/divestures/Venezuela deconsolidation had a 1% positive impact on sales. Organic sales rose 2% as all three businesses experienced solid volume growth with innovation and some pricing adjustments to improve value gaps. While organic volumes rose 4%, price declined 1%. Mix had a 1% negative impact on sales.
The segment’s net earnings declined 7% to $697 million.
Rising Margins
Core gross margin expanded 50 basis points (bps) to 51.6% as productivity cost savings and higher volume benefits were offset by currency headwinds, unfavorable mix, innovation and capacity investments, and higher commodity costs.
Core selling, general and administrative expense (SG&A) margin increased 40 bps (as a percentage of sales) to 28.3% owing to benefits from overhead and marketing spending reductions due to productivity efforts. Core operating margin expanded 20 bps to 23.4% owing to productivity cost savings.
P&G has undertaken an aggressive cost-cutting plan to reduce spending across all areas like supply chain, research & development, marketing and overheads.
Financials
As of Sep 30, 2016, the company’s cash and cash equivalents were $7,456 million, up from $7,102 million at the end of fiscal 2016 (as of Jun 30, 2016). Long-term debt was $18,910 million as of Sep 30, 2016, slightly down from $18,945 million at fiscal 2016-end.
Cash flow from operating activities were $3,025 million during the quarter, down from $3,538 million a year ago.
Fiscal 2017 Guidance
The Cincinnati-based company maintained its organic sales growth projection at approximately 2% for fiscal 2017. It expects the combined foreign exchange headwind and minor brand divestitures to reduce sales by about 1 percentage points. P&G estimates all-in sales growth of about 1% for fiscal 2017.
Core earnings per share are expected to grow in mid-single digits as against the fiscal 2016 core earnings of $3.67 per share.
Currency is expected to be only a small headwind in 2017.
Management expects “small’’ improvement in profit margins.
Capital expenditure is expected to be 5%-5.5% of sales.
Core effective tax rate is expected to be in line with the fiscal 2016 rate.
Free cash flow productivity is anticipated to be 90% or more of adjusted net earnings.
In fiscal 2017, the company expects to repurchase shares worth $15 billion (including those exchanged in the Coty transaction) and pay more than $7 billion in dividends.
Average share count is estimated to decline by approximately 4% in fiscal 2017.