We have maintained a Neutral recommendation on
he Procter & Gamble Company
) encouraged by solid first quarter fiscal 2013 results and the
company's turnaround efforts.
P&G's first quarter earnings of $1.06 were significantly
better than the Zacks Consensus Estimate and improved 5% from the
prior-year level. The earnings upside was driven by organic sales
growth, lower commodity cost headwinds and improved
The consumer products giant's net sales dropped 4% to $20.74
billion in the quarter. However, improved market share trends in
its U.S. markets let sales to be at the favorable end of
management expectations of a shortfall of 4% to 6%.
Slowdown in developed nations and commodity cost increases had
resulted in a series of disappointing earnings results and
guidance cuts for P&G. However, first quarter 2013 as well as
the fourth quarter 2012 results came in much better than the past
quarters. Following the impressive results in the first quarter,
P&G maintained its organic sales growth and core earnings
guidance for fiscal 2013.
Overall, we are encouraged by P&G's strong brand
recognition, diversified portfolio, rapid growth in developing
nations, impressive product development capabilities and
P&G's products enjoy strong brand recognition and are sold
in more than 180 countries around the world. P&G's 50
Leadership Brands are some of the world's most commonly used
household names, representing around 90% of the company's sales
and profits. These 50 brands include 25 power brands that
generate $1 billion to over $10 billion in sales annually.
Moreover, P&G is known for its impressive product development
capabilities and marketing prowess. P&G has consistently
increased market share in fast growing businesses over the years
through innovation and new product launches. The company's drive
for innovation and marketing strategies allow it to expand in
more categories, geographies and channels, thus boosting top- and
P&G has a strong presence in the fast growing developing
markets as the company sees sluggish growth in developed nations,
principally in North America and Western Europe, due to weak
economic conditions, aggressive competitive activity and market
share declines. The company is working on this strategy by
focusing on affordability, accessibility and brand awareness and
is localizing production in developing countries to improve
margins. Developing market sales have grown at a compounded
average growth rate of 12% over the last 12 years.
Other than these, the company's solid cash flow generation
capabilities and its cost savings and productivity improvement
allow for investment in product innovations, acquisitions, and
While fiscal 2012 was a tough year for P&G, the company
has laid out plans to improve results in developed markets while
maintaining momentum in the developing nations. Moreover, the
company will increase focus on the most profitable business, its
biggest innovations and further accelerate cost savings. However,
we would prefer to wait and see if the plan is effectively
executed. Thus, we have a Neutral recommendation on the stock.
The stock carries a Zacks #2 Rank (a short-term Buy rating). A
Kimberly Clark Corporation
) also carries the same rank.
KIMBERLY CLARK (KMB): Free Stock Analysis
PROCTER & GAMBL (PG): Free Stock Analysis
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