On Feb 28, we maintained a Neutral recommendation on
he Procter & Gamble Company
), following appraisal of its second quarter 2013 results.
Why the Neutral Recommendation?
The consumer giant's second-quarter earnings of $1.22
surpassed the Zacks Consensus Estimate by almost 10% and improved
12% from the prior-year level driven by organic sales growth and
improved productivity. Net sales elevated 2% driven by improving
global market share trends. Also, both earnings and revenues were
better than management's expectations.
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. In addition, the company implemented costs savings
and productivity improvement initiatives in order to improve
margins. We believe P&G is gaining momentum from these
efforts as evident from 2 back-to-back solid quarterly
Following solid first half results, P&G raised its sales
and earnings outlook for fiscal 2013. However, the earnings
guidance was slightly reduced in mid February to include the
impact of the Venezuelan currency devaluation.
The earnings guidance cut in mid February resulted in some
downward revisions in estimates. Despite the downward revisions,
the Zacks Consensus Estimate for 2013 improved 1.0% in both 2013
and 2014 to $4.06 and $4.38 over the last 30 days. This may be
due to increased confidence of analysts in the future prospects
of this maker of Tide detergent and Olay shampoo.
Overall, we are encouraged by P&G's strong brand
recognition, diversified portfolio, rapid growth in developing
nations, impressive product development capabilities and
As part of its turnaround plans, 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 operating profit. 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 concentrating on
its 10 most important developing markets.
We would, however, remain on the sidelines until we witness
some additional progress from the turnaround efforts. Moreover,
though some signs of modest economic recovery and improving
consumer confidence can be seen in the U.S., there is still great
uncertainty as the fiscal cliff looms. 2013 is also not expected
to see any robust economic growth in the U.S.
Other Stocks to Consider
P&G carries a Zacks Rank #2 (Buy). Some other consumer
staples stocks worth considering include
Church & Dwight Co. Inc.
The Hershey Company
). All these stocks carry a Zacks Rank #2 (Buy).
CHURCH & DWIGHT (CHD): Free Stock Analysis
HERSHEY CO/THE (HSY): Free Stock Analysis
KELLOGG CO (K): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis
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