The Procter & Gamble Company
) reported mixed fiscal third-quarter 2014 results beating the
Zacks Consensus Estimate for earnings but missing the same for
sales. A significantly lower tax rate played a major role in
driving the earnings beat. The consumer products giant also
maintained its financial outlook for fiscal 2014.
The company's third-quarter fiscal 2014 adjusted earnings
(excluding restructuring cost and balance sheet revaluation
charges due to Venezuelan Bolivar swings ) of $1.04 per share
beat the Zacks Consensus Estimate of $1.02 by 2%. Moreover,
earnings increased 5% in the quarter despite currency headwinds
of 12 cents, higher than 11 cents reported last quarter.
Excluding currency headwinds, earnings increased 17% in the
quarter as healthy organic sales growth, improved operating
margins and lower taxes boosted earnings in the quarter.
P&G's net sales were flat at $20.56 billion due to a 3%
headwind from currency. The top line narrowly missed the Zacks
Consensus Estimate of $20.67 billion. With around 60% of the
company's business generated outside North America, a strong
dollar lowered the value of international sales.
Revenues and Margins
Organically (excluding the impact of acquisitions,
divestitures and foreign exchange), revenues were up 3% due to
growth in both volume and pricing.
Organic volumes grew 3% in the quarter, same as in the second
quarter. Pricing increased sales by 1%, same as in the previous
quarter. Foreign exchange hurt revenues by 3%. Geographic/product
mix declined 1% in the quarter due to higher growth in lower
margin developing countries.
All the segments did well in the quarter. While the Beauty and
Fabric Care/Home Care segments picked up from the last quarter,
the HealthCare businesses slowed down due to product recalls in
Pet Care and lower demand in Personal Health Care.
Despite manufacturing savings, volume leverage and pricing
gains, core gross margin declined 110 basis points (bps) to 48.9%
due to unfavorable geographic/product mix, currency headwinds and
higher commodity costs.
Core selling, general and administrative expenses (SG&A)
improved 130 bps (as a percentage of sales) to 29.9% due to
productivity/overhead savings and marketing spending efficiency.
Core operating margin improved 20 bps to 19.0% as gains from
lower SG&A ratio made up for the weak gross margins. However,
we note that both gross and operating margins declined
sequentially in the third quarter.
The effective tax rate stood at 19.7%, a significant 250 bps
lower than 22.2% in the year-ago quarter. Lower tax rate boosted
earnings per share by 3 cents in the quarter.
Fiscal 2014 Outlook Retained
Core earnings per share are still expected to grow in the
range of 3-5% in fiscal 2014. We would like to remind investors
that P&G lowered its fiscal 2014 core earnings forecast in
Feb 2014 from a range of 5-7% to 3-5% to reflect emerging-market
Net revenue growth is expected to approximately 1%, slightly
better than previous expectations of a range of 0% to 2%.
Currency is expected to hurt revenues by 2-3%, However, organic
sales are still expected to increase between 3% and 4% in fiscal
Other Stocks to Consider
P&G carries a Zacks Rank #3 (Hold). Some better-ranked
consumer staples companies include
Coca-Cola Enterprises Inc.
Mondelez International, Inc
). All the three stocks carry a Zacks Rank #2 (Buy).
COCA-COLA ENTRP (CCE): Free Stock Analysis
MONDELEZ INTL (MDLZ): Free Stock Analysis
PEPSICO INC (PEP): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis
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