Procter & Gamble Co.
) reported modest results for the third quarter 2012, with adjusted
earnings (excluding restructuring charges) of 94 cents per share
beating the Zacks Consensus Estimate by a penny.
Moreover, earnings were in line with the prior-year figure as
benefits from top-line growth and cost savings from restructuring
activities were offset by rising commodity costs. Adjusted earnings
were within the company guidance of 91 cents to 97 cents per
Revenue and Margins
P&G's net sales increased 2% to $20.2 billion in the third
quarter 2012. However, organically (excluding the impact of
acquisitions, divestitures and foreign exchange), revenues were up
3% driven primarily by pricing benefits, which offset headwinds
from product and geographic mix.
Broad-based price increases added 5% to revenue growth, whereas
geographic/product mix pulled down sales growth by 2%. Volumes were
flat in the quarter. P&G's net sales marginally missed the
Zacks Consensus Estimate of $20.3 billion.
The retail giant who until now owned 24 billion dollar brands
like Tide and Gillette to name a few announced the addition of
Vicks and SK-II to its core brands portfolio.
Gross margin for the quarter declined 150 basis points due to
higher commodity costs and unfavorable geographic/product mix.
Adjusted operating profit was up 2% in the quarter despite the
tough macroeconomic environment where most retail and consumer
companies are witnessing margin declines. P&G's productivity
improvement and cost-saving programs combined with favorable
revenue growth led to the operating profit expansion.
: Beauty products grew 1% (2% organically) to $4.8 billion driven
by pricing growth. Price increases added 5% to revenue growth
whereas mix reduced it by 4%. Volumes were up 1%. Volume gains in
the Hair Care and Prestige Products offset weakness in Skin Care,
Personal Care and Cosmetics.
The segment's net earnings were up 3% to $523 million as
benefits from revenue growth and a lower tax rate partially offset
decline in operating margins Operating margins contracted due to
rising commodity costs and unfavorable mix.
: Grooming products were flat (2% organically) at $2.0 billion.
Price increases added 3% to revenue growth whereas product mix
reduced it by 2%. Volumes were up 1% with both Shaving Care and
Appliances sub-segments witnessing low-single digit volume
The segment witnessed gross margin declines again due to rising
commodity costs and unfavorable geographic/product mix. Net
earnings declined 4% to $398 million due to gross margin
: Healthcare products increased 2% (2% organically) to $3.0
billion. Price increases added 3% to revenue growth while volumes
were flat. Volume gains in the Feminine Care segment were offset by
declines in the Oral Care and Personal Health Care. The segment's
net earnings were down 4% to $411 million due to gross margin
Fabric Care and Home Care
: The segment grew 1% (2% organically) to $6.6 billion as pricing
gains were offset by volume declines. Price increases added 7% to
revenue growth whereas mix and volumes reduced it by 2% and 3%,
All the three sub-segments - Home Care, Fabric Care and Pet Care
- witnessed volume declines in the quarter. The segment's net
earnings were down 9% to $716 million due to soft sales and
operating margin declines (due to rising commodity costs and lower
Baby Care and Family Care
: The segment grew 5% (6% organically) to $4.2 billion driven by
volume growth. Price increases added 5% to revenue growth whereas
mix reduced it by 2%. Volumes were up 3% with the sub-segments -
Baby Care and Family Care - registering low-single digit increases
The segment's net earnings increased 5% to $573 million driven
by sales growth and improvement in operating margins. Operating
margins expanded due to higher gross margins (driven by price
increases and cost savings) and lower sales, general &
administrative costs (as a percentage of revenue).
Overall, almost all the business segments 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 February this year, P&G announced an agreement to
spin-off its snacks unit which included the popular brand,
Pringles, to leading cereal maker
The Kellogg Company
). The deal is expected to close by the end of June 2012.
In fiscal 2012, the consumer goods giant is expected to post
sales growth of 4%, both reported as well as organic. Pricing
benefits are expected to add 4% to revenue growth whereas mix is
expected to reduce it by 1%. Foreign exchange is expected to have a
neutral impact on revenue growth.
Previously, the company was expecting organic sales to inflate
by 4%-5% in fiscal 2012. Adjusted earnings are expected to range
between $3.82 and $3.88, down 1% from 2011 levels. The Zacks
Consensus Estimate currently stands at $3.96 for fiscal 2012.
In the final quarter of fiscal 2012, P&G expects to record
sales growth of 2%. Organically sales are expected to be up 4%-5%
benefiting mostly from pricing actions. Foreign exchange is
expected to pull down the revenue growth by 3%.
Management expects the fourth quarter to see better operating
growth than the third quarter benefiting from solid top-line and
improved productivity. Adjusted earnings are expected in the range
of 79-85 cents per share, down 4%-5% from prior-year levels. The
Zacks Consensus Estimate currently stands at $3.96 for the fourth
Management expects commodity cost pressure to ease a bit in the
next quarter though they will continue to be a headwind to
earnings. Moreover, the effective tax rate is expected to reduce
adjusted earnings by 6%.
We currently have a Neutral recommendation on Procter &
Gamble. The stock carries a Zacks #3 Rank in the near term (Hold
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