We recently downgraded our rating on
The Procter & Gamble Company
(
PG
) from Neutral to Underperform following the guidance cut for the
final quarter of fiscal 2012, ending June 2012.
In late June 2012, P&G lowered its sales and earnings
outlook for the final quarter of fiscal 2012. For the fourth
quarter, P&G expects revenues to decline in the range of 1% to
2% versus prior expectations of growth in the range of 1% to 2%.
Organic sales are expected to be up 2% to 3% versus prior guidance
of sales growth of 4% to 5%. Foreign exchange is estimated to pull
down revenue growth by 4% versus 3% expected previously. Adjusted
earnings are expected in the range of 75 cents to 79 cents per
share versus 79 cents to 85 cents earlier. The earnings guidance
excludes gain of 47 cents to 50 cents on the recent divestment of
Pringles to
Kellogg Company
(
K
).
Management blamed the guidance cut on lower-than-expected
top-line growth due to a slowing global economy, sluggish market
share growth in the developed countries and China, and foreign
exchange headwinds. This marks the second cut in P&G's guidance
in the last two months. The company had already reduced its fiscal
2012 top and bottom line outlook at its third quarter conference
call due to Venezuela price regulations, rising input costs and
economic uncertainty in Western Europe and U.S. In addition, the
company provided a disappointing outlook for fiscal 2013.
While P&G sees volume gains in the developing countries, it
is witnessing sluggish growth in the developed nations, principally
in North America and Western Europe, due to weak economic
conditions and market share declines. The developed markets account
for almost 60% of the company's sales and a higher percentage of
profits. Their underperformance reduced the company's growth by 1
percentage point in fiscal 2011 and continues to hurt results in
fiscal 2012.
P&G has also failed to launch a break-through new brand or
create a new product category for quite some time now. P&G
plans to redress the situation by focusing once again on
innovation. Moreover, rising commodity costs are constantly hurting
the company's margins. Other short-term headwinds include business
disruptions in Venezuela, import restrictions in Argentina and the
negative impact of foreign exchange. We have thus downgraded our
rating on P&G from Neutral to Underperform as most of these
issues are expected to persist and pressure earnings in the near
term.
KELLOGG CO (K): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis
Report
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