Procter & Gamble Co.
(
PG
) reported modest results for the second quarter 2012, with net
earnings from continuing operations sliding 49.0% year over year to
57 cents a share, which missed the Zacks Consensus Estimate by
47.22%. Profits were limited due to non-core charges of 53 cents
per share including a one-time 50 cents per share non-cash
impairment charge associated with the Appliances and Salon
Professional businesses.
Procter & Gamble forecasts third-quarter 2012 net earnings
from continuing operations and core earnings to be in the range of
91 cents to 97 cents per share, down negative 5% to up positive 1%
versus a base period Core EPS of 96 cents. The Zacks Consensus
Estimate for the second quarter is expected to be $1.05 per
share.
For second half of 2012, diluted net earnings per share from
continuing operations and Core EPS are expected to increase
4%-9%.
Revenue and Margins
P&G's net sales increased 4% to $22,135 billion in the
second-quarter 2012. Excluding the impact of acquisitions,
divestitures and foreign exchange, organic sales grew 4% in the
reported quarter. P&G's net sales marginally missed the Zacks
Consensus Estimate of $22,172.0 million.
Baby Care and Family Care segment led the net sales growth and
advanced 6% to $4.2 billion. Fabric Care and Home Care segment's
net sales moved up 5% year over year to $6.6 billion.
Volume was up 1%, fuelled by initiatives and continued market
expansions. High-single-digit growth in developing regions was
partially offset by a mid-single-digit decrease in developed
regions. For the quarter, volume growth was broad-based and
was led by double-digit growth in Prestige Products. However,
competitive activity in North America dragged the Olay volume down.
Additionally, it declined due to a decrease in customer inventories
in CEEMEA (Central Eastern Europe Middle East & Africa) region,
which was a result of strong shipments in the October-December
quarter.
Procter & Gamble, the leading manufacturer and seller of
consumer goods, projects organic sales to inflate 4%-5%, backed by
continued benefit from pricing, partially offset by unfavorable mix
of 1%-2% in the fiscal year 2012. For third quarter 2012, net sales
are expected to remain in line while organic sales are expected to
grow by 3%-5%.
Gross margin for the quarter declined 210 basis points, higher
commodity costs, partially offset by pricing and manufacturing cost
savings.
Operating margin slipped 160 basis points due to lower gross
margin and higher selling, general and administrative expenses
(SG&A) as a percentage of net sales.
Procter & Gamble exited the quarter with cash and cash
equivalents of $2,768 million and long-term debt increased by
$1,990 million.
Recommendation
We are encouraged by the company's expansion of its portfolio of
brands, both through internal development and acquisition. However,
Procter and Gamble is currently facing high commodity cost
inflation and severe competition from companies like
Kimberly-Clark Corporation
(
KMB
) and
Johnson & Johnson
(
JNJ
) in the Western European markets in both the blade and battery
businesses.
P&G holds a Zacks #3 Rank, translating into a short-term
Hold rating.
JOHNSON & JOHNS (
JNJ
): Free Stock Analysis Report
KIMBERLY CLARK (
KMB
): Free Stock Analysis Report
PROCTER & GAMBL (
PG
): Free Stock Analysis Report
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