Procter & Gamble Company
) reported second quarter fiscal 2013 adjusted earnings
(excluding restructuring charges) of $1.22 per share, which
surpassed the Zacks Consensus Estimate of 1.11 cents by almost
10%. Earnings also beat management guidance of $1.07 to $1.13 and
improved 12% from the prior-year level driven by solid organic
sales growth and improved productivity.
The consumer products giant's net sales increased 2% to $22.18
billion in the quarter. The sales growth rate was also above
management expectations of a range of negative 1% to a positive
1% due to improving global market share trends.
The company maintained its share in businesses comprising over
50% of sales in the quarter, up from 45% in the last quarter.
P&G's net sales also surpassed the Zacks Consensus Estimate
of $21.89 billion.
Fiscal 2012 was a tough year for P&G and the company plans
to implement some meaningful changes to re-accelerate its top and
bottom-line growth in keeping with the peer companies. In
addition, the company has implemented costs savings and
productivity improvement initiatives in order to improve
All these efforts are bearing fruit as evident from 2 back to
back solid quarterly results. Following the solid first half
results, P&G raised its sales and earnings outlook for fiscal
We were expecting a positive earnings beat this quarter from
P&G as the stock had the impressive combination of Zacks Rank
#2 (Buy) and +1.80% ESP (Expected Surprise Prediction) (Read:
Zacks Earnings ESP: A Better Method
). Moreover, this consumer giant has beaten earnings estimates in
the past 4 straight quarters with an average earnings surprise of
Revenue and Margins
Organically (excluding the impact of acquisitions,
divestitures and foreign exchange), revenues were up 3% driven by
balanced growth in volume and price. Organic revenues growth was
at the higher end of management guidance due to
lower-than-expected currency headwinds and decent volume
Broad based price increases added 2% (in line with
expectations) to revenue growth. Foreign exchange hurt revenues
by 1%, half of management expectations of 2%. Volumes grew 2% in
the quarter while geographic/product mix was a headwind of 1%.
All business segments delivered organic sales growth rates of 2%
Core gross margin increased 110 basis points to 51.2% as
pricing gains and cost savings offset headwinds from
geographic/product mix. Core selling, general and administrative
expenses (SG&A) were flat (as a percentage of sales) at 30.2%
in the quarter, as productivity gains were offset by higher
pension costs. Core operating margin improved 110 basis points to
21.0% in the quarter due to gross margin expansion and cost
: Beauty products improved 1% from the prior year (up 3%
organically) to $5.4 billion in the reported quarter driven by
innovation and better pricing. Price increases added 3% to
revenue growth, whereas mix and volumes were flat. Foreign
exchange had a negative impact of 1% on revenues.
: Grooming products declined 4% to $2.1 billion in the quarter
due to currency headwinds and spin-off of the household
appliances business. Organically, revenues increased 2% in the
quarter. Price increases added 2% to revenue growth, whereas
volumes reduced it by 2%. Mix was flat in the quarter while
currency impact pulled down revenues by 3%.
: Healthcare products improved 3% to $3.27 billion driven by
higher net sales in all the three segments - Oral Care, Feminine
Care and Personal Health Care. Organically, revenues grew 4%.
Price increases added 2% to the revenue growth, while mix
declined 1%. Volumes grew 3%. Currency had a negative impact of
2% on sales.
Fabric Care and Home Care
: The segment improved 3% to $7.2 billion driven by higher net
sales in all the three segments- Fabric care, Home care and
Batteries. Organically, revenues grew 3%. Price increases added
1% to the revenue growth, while mix was flat. Volumes grew 2%.
Currency had a neutral impact on sales.
Baby Care and Family Care
: The segment improved 4% to $4.3 billion driven by growth in
both the segments - Family Care and Baby Care due to innovation.
Organically, revenues grew 5% driven by price and volume growth
and 2% and 6%, respectively. Mix pulled down revenues by 3% while
currency hurt sales by 1%.
Fiscal 2013 Outlook Upped
Management increased its organic sales growth guidance to a
range of 3% to 4% from prior expectations of 2% to 4%. Net
revenues are expected to rise between 1% and 2% better than the
prior guidance of growth remaining flat or increasing upto 1%
from 2012 levels. Currency is expected to hurt revenues by 2%
lower than the prior expectation of a headwind in the range of 2%
The company also upped its previously provided core earnings
guidance range of $3.80-$4.00 to $3.97-$4.07. The new guidance
represents a growth rate of 3%-6% from 2012 levels, surpassing
the prior expectation of a year-over-year movement of a negative
1% to a positive 4%. The better outlook emanated from the
expectation of stronger productivity improvements, cost savings
and higher share repurchases.
P&G hiked its share repurchase expectations from a range
of $4 billion-$6 billion to a range of $5 billion-$6 billion.
P&G has laid out plans to improve results in developed
markets while maintaining momentum in the developing nations. The
company is focusing resources on the 40 largest and most
profitable businesses, most of which are in developed markets.
These businesses account for about 50% of sales and 70% of
The company is also focusing on driving its 20 biggest
innovations like Tide Pods, Always Radiance, Bounty Trap &
Lock and Bounty Unstoppables in more markets in fiscal 2013.
Moreover, the company is also concentrating on its 10 most
important developing markets.
Third Quarter 2013 Outlook
In the third quarter of fiscal 2013, the company expects both
net and organic revenues to range between 3% and 4%. Foreign
exchange is expected to have a neutral impact on sales. Core
earnings are expected to remain in the range of $0.91 to $0.97,
representing a movement in the range of negative 3% to positive
) also announced its fourth quarter 2012 results today, beating
the Zacks Consensus Estimate for both revenues and earnings.
Other Stocks to Consider
P&G carries a Zacks Rank #3 (Hold). We also see likely
earnings beats coming from the following industry peers:
): Earnings ESP of +1.43% and Zacks Rank #2 (Buy).
The Clorox Company
): Earnings ESP of +1.24% and Zacks Rank #3 (Hold).
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PROCTER & GAMBL (PG): Free Stock Analysis
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