The Procter & Gamble Company's
) fourth quarter of 2012 adjusted earnings (excluding restructuring
charges) of 82 cents per share were ahead of the Zacks Consensus
Estimate of 77 cents as well as management guidance of 75 cents-79
Nevertheless, earnings were flat with prior-year levels, as
benefits from pricing and cost savings from restructuring
activities were offset by top-line shortfall and rising commodity
P&G's net sales inched down 1% to $20.2 billion in the
fourth quarter of 2012 and were in line with management
expectations. P&G's net sales marginally missed the Zacks
Consensus Estimate of $20.3 billion.
Foreign currency fluctuations against a strong dollar are
pulling down revenues for most of the companies that have
significant business outside the U.S. P&G, the maker of Tide
detergent and Olay shampoo, is no exception with this regard, and
this headwind primarily dragged the revenues down.
Back in late June, the consumer goods giant had lowered its
sales and earnings outlook for the final quarter of fiscal 2012
marking the second successive cut in the company's guidance in the
last three months. The guidance cut resulted from a slowing global
economy, sluggish market share growth in the developed countries
and China, and foreign exchange headwinds. The overall results
announced were almost in line with the lowered guidance.
Revenue and Margins
Organically (excluding the impact of acquisitions, divestitures
and foreign exchange), revenues were up 3% as pricing benefits
offset headwinds from product/geographic mix and foreign exchange.
The organic revenue growth was at the higher end of management
Broad-based price increases, mainly to offset the commodity cost
headwinds, added 4% to revenue growth. Geographic/product mix
pulled down sales growth by 1% due to higher growth in developing
nations and product categories which have lower selling prices.
Foreign exchange hurt revenues by 4%, as expected by management.
Volumes were flat in the quarter.
However, core gross margin increased 10 basis points to 48.6%,
as pricing and cost savings offset headwinds from commodity costs
and geographic/product mix. Core selling, general and
administrative expenses (SG&A) declined 80 basis points (as a
percentage of sales) to 32.2% in the quarter, due to lower overhead
costs. Core operating profit was up 4% in the quarter due to
productivity improvements and cost savings.
: Beauty products declined 4% over the prior-year quarter (up 1%
organically) to $4.8 billion as price increases were offset by
headwinds from volume and mix. Price increases added 4% to revenue
growth whereas mix reduced it by 3%. Foreign exchange had a
negative impact of 4% on revenues.
Volumes were down 1%. Volume gains in Prestige Products were
offset by weakness in Beauty and Hair Care. The segment's net
earnings were flat at $382 million due to revenue shortfall, rising
commodity costs and unfavorable mix.
Grooming products declined 6% (flat organically) to $2.0 billion,
mainly due to currency headwinds of 6%. Price increases added 1% to
revenue growth whereas product mix reduced it by 1%. Volumes were
flat with mid-single digit volume growth in Appliances offsetting
flat Shave Care volumes. Net earnings were flat at $406 million as
revenue shortfall was offset by operating margin growth.
Health care products declined 1% (up 3% organically) to $2.9
billion. Price increases added 4% to revenue growth while volumes
grew 1%. Mix and currency pulled down revenues by 1% and 5%,
respectively. Volume gains in the Personal Health Care and Feminine
Care segment were offset by declines in the Oral Care segment. The
segment's net earnings were down 2% to $336 million due to gross
Fabric Care and Home Care:
The segment declined 1% (up 3% organically) to $6.6 billion as
pricing gains were offset by volume and mix headwinds. Price
increases added 5% to revenue growth, whereas mix and volumes
reduced it by 1% each. Foreign exchange hurt sales by 4%.
Volume decline in Home Care was offset by declines in the Pet
Care and Fabric Care segments. The segment's net earnings improved
10% to $635 million due to higher gross margins and lower SG&A
which offset the revenue shortfall.
Baby Care and Family Care:
The segment grew 1% (up 5% organically) to $4.1 billion driven by
price and volume growth. Price increases added 4% to revenue
growth, whereas currency reduced it by 4%. Volumes were up 1% with
increases in Baby Care, offsetting the decline in the Family Care
The segment's net earnings increased 13% to $540 million, driven
by sales growth and improvement in operating margins. Operating
margins expanded due to higher gross margins, which were driven by
price increases and cost savings.
Overall, almost all the business segments witnessed sequential
declines in revenue and net earnings. All the segments also
witnessed volume gains in the fast growing developing nations as
against their developed counterparts, which are currently suffering
from low consumer disposable incomes and saturated markets.
In June 2012, P&G completed the sale of its snack unit that
included the iconic Pringles brand to cereal maker
The Kellogg Company
). The transaction generated a gain of 48 cents per share,
including which earnings would have been $1.24.
In fiscal 2012, the company witnessed a 3% increase in revenue
to $83.7 billion, slightly missing the Zacks Consensus Estimate of
$83.9 billion. Adjusted earnings (excluding mark-to-market effects
and restructuring charges) were $3.85 per share, which beat the
Zacks Consensus Estimate of $3.80. Earnings, however, declined 1%
from the prior year.
For fiscal 2013, the company expects revenues to remain flat or
decline 2% from 2012 levels, mainly due to currency headwinds of
4%. P&G maintained its previously provided organic sales growth
guidance of 2%-4%.
Pricing is expected to boost the top-line by 2% while
geographic/product mix is expected to pull it down by 1%. The
company also maintained its previously provided core earnings
guidance range of $3.80-$4.00. The Zacks Consensus Estimate stands
at $3.89 per share. P&G expects to repurchase stock worth $4
billion in the year.
Further, management continues to expect its productivity and
cost savings plan, announced in February 2012, to generate $10
billion in cost reductions by the end of fiscal 2016. The plan aims
to reduce spending across all areas, including a workforce
reduction of 5,700 by the end of fiscal 2013.
First Quarter 2013 Outlook
In the first quarter of fiscal 2013, the company expects
revenues to decline in the range of 4%-6. Organic sales are
expected to remain flat or grow 2%.
Pricing is expected to boost the top-line by 3% while foreign
exchange is expected to pull it down by 6%. Core earnings are
expected to remain in the range of 91 cents to 97 cents,
representing a year over year decline of 4%-10% mainly due to
We currently have an Underperform recommendation on Procter
& Gamble. The stock carries a Zacks #4 Rank in the near term
P&G is struggling due to sluggish growth in the developed
nations, principally in North America and Western Europe, which
account for almost 60% of the company's sales and a higher
percentage of profits. Moreover, rising commodity costs are
constantly hurting the company's margins. Other short-term
headwinds like business disruptions in Venezuela, import
restrictions in Argentina and a negative impact of foreign exchange
are also posing near-term challenges.
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