Despite worse-than-expected currency headwinds,
The Procter & Gamble Company
) reported mixed fiscal second-quarter 2014 results beating the
Zacks Consensus Estimate for earnings but missing the same for
sales. Pricing improved in the quarter and margins were better
than the previous quarter. The consumer products giant also
maintained its financial outlook for fiscal 2014.
P&G's second-quarter fiscal 2014 adjusted earnings
(excluding restructuring charges) of $1.21 per share beat the
Zacks Consensus Estimate of $1.20 by a penny. However, earnings
declined 1% in the quarter largely due to currency headwinds of
11 cents per share. Currency headwinds were worse than
management's expectation of a headwind of 9 cents same as in the
Excluding currency headwinds, earnings increased 8% in the
quarter as volume growth, pricing gains, cost savings and lower
taxes made up for the lower margins in the quarter.
P&G's net sales were flat at $22.28 billion due to a 3%
headwind from currency. Top line slightly missed the Zacks
Consensus Estimate of $22.343 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.
The Health Care segment showed the strongest organic sales
growth of 5% in the quarter due to innovation in Oral Care and
Personal Health Case businesses. Both the Grooming and Baby/
Feminine/ Family Care segments grew 3% driven mainly by product
The Fabric Care/Home Care grew 4% organically as innovation
and market expansion into developing countries aided growth in
Fabric Care and Home Care businesses. The Beauty division
continued to struggle delivering flat growth as gains from market
growth and innovation in Prestige, Hair Care, Deodorants and
Personal Cleansing businesses were offset by lower Skin Care
Despite manufacturing savings and pricing gains, core gross
margin declined 90 basis points (bps) to 50.3% due to unfavorable
geographic/product mix, currency headwinds and higher commodity
Core selling, general and administrative expenses (SG&A)
improved 80 bps (as a percentage of sales) to 29.4% due to
productivity/overhead savings and marketing spending efficiency.
Core operating margin declined 10 bps to 20.9% as gains from a
lower SG&A ratio were offset by lower gross margins. However,
both gross and operating margins improved sequentially in the
Fiscal 2014 Outlook Retained
Core earnings per share are expected to grow in the range of
5%-7% in fiscal 2014. Earnings growth is expected to be
second-half weighted as several headwinds which hurt the
first-half earnings growth are expected to dissipate in the
second. Earnings are expected to improve in the second half
driven by accelerated productivity gains and cost savings and
moderating currency headwinds.
Management expects organic sales to increase between 3% and 4%
in fiscal 2014, better than the 2013 growth rate of 3%. Net
revenue is expected to rise between 1% and 2%. Currency is
expected to hurt revenues by 2%.
Other Stocks to Consider
P&G carries a Zacks Rank #4 (Sell). Some better-ranked
consumer staples companies include
Post Holdings, Inc.
Green Mountain Coffee Roasters, Inc.
The Hain Celestial Group, Inc
). While Post Holdings and Green Mountain carry a Zacks Rank #1
(Strong Buy), Hain Celestial has a Zacks Rank #2 (Buy).
GREEN MTN COFFE (GMCR): Free Stock Analysis
HAIN CELESTIAL (HAIN): Free Stock Analysis
PROCTER & GAMBL (PG): Free Stock Analysis
POST HOLDINGS (POST): Free Stock Analysis
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