Following a string of poor results during past quarters, Procter
& Gamble's (
PG
) latest Q2 2012-13 earnings should come as a huge relief for both
investors and the management.
The company renovated its overall strategy during the last
quarter, emphasizing a deeper push into emerging markets and
competitive pricing in developed markets to fight back against
competitors such as Unilever who seemed to be gaining ground on
P&G across several product segments during the previous fiscal
year.
See our full analysis for Procter &
Gamble
Emerging Markets Help Push Sales
P&G's net sales for the October-December period stood at
$22.2 billion, marking a 2% rise over the same quarter in the
previous year. Compare this to the previous quarter, when the
company's net sales declined by 4%, and P&G's business finally
looks to be on the mend. More numbers to support P&G's general
recovery come from market share statistics - P&G held or grew
market share in businesses representing nearly 50 percent of sales
in the October-December quarter compared to 45% in the previous
quarter and only around 30% in the April-June quarter.
The company's rise in net sales were led by 3% growth in organic
sales with volume and and improved pricing contributing in equal
measures. The growth in organic sales was a balanced one with all
business segments up 2% or more. The importance of P&G's focus
on emerging markets comes to the front here. Organic sales
growth from developing economies were up by 7%, BRIC markets were
up 11%, led by Brazil and India with organic sales growth of over
20%.
Bottom Line Improves Against All Odds
The company's improvement in the top line was complemented by a
strong bottom line performance. We had mentioned in our
pre-earnings review
that the company's deeper penetration in emerging markets might
weigh on its operating profits. But P&G seems to be
successfully tackling issues such as a skewed product mix and
increased cost of sales. Core operating profit margin grew 110
basis points, including 160 basis points of productivity
improvements and cost saving. A key driver here is the company's
cost restructuring program put in place in Q1 2012-13, with
which P&G aims to reduce costs by $10 billion by 2016.
The combined effect of top and bottom line improvement was
reflected in the company's earnings per share (
EPS
) figures, which stood at $1.39 for the quarter. This is
well ahead of the company's own guidance of $1.18 to $1.25 per
share. Based on the quarter's better than expected performance,
P&G has revised its annual EPS estimate for 2012-13
from $3.97 to $4.07.
Continued Growth In Baby Care And Recovery In Fabric
Care, Grooming Remains A Worry
Among product segments, Baby Care registered the most robust
performance in line with our expectations. The company's focus on
improving sales of diapers in areas such as China and India helped
grow net sales by 4% and overall organic sales by 6%.
trefis_forecast ticker="PG" driver="0681″]
Fabric and Home Care, the company's largest segment in terms of
revenues, also put in a strong performance with net sales growing
by 3%, mostly driven by growth in sales volume.
trefis_forecast ticker="PG" driver="0637″]
The weakest performer in P&G's portfolio was the Grooming
segment, which includes the Gillette range of men's grooming
products. Net sales in this segment declined by 2% as the
company failed to see any traction in volumes despite its
recent attempts at leveraging emerging
economies
.
trefis_forecast ticker="PG" driver="0663″]
We will be updating our $70 price estimate for P&G
based on the earnings release.
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