In the recently-held analyst day meeting,
Procter & Gamble Company (
PG
)
reaffirmed its previously-provided outlook, highlighted potential
for higher share repurchases, announced further job cuts and
discussed its innovation pipeline.
Innovation Plans
Innovation is the driving force for P&G and the company
has a strong tradition of not only introducing blockbuster new
products but also creating entirely new categories. However,
P&G has failed to launch any game-changing product in the
recent past. At the call, the company announced plans to boost
discontinuous innovations; which are breakthrough innovations of
existing products.
The company also highlighted some present and upcoming product
launches during the call. Some recent successful product launches
include Tide Pods, Downy Unstoppables diapers, ZzzQuil sleeping
aid product, Pro Health for Life oral care line and some new
prestige fragrances among others. Some upcoming product launches
include Cascade Platinum dishwasher in U.S, a new line of Olay
skin care products, Vidal Sassoon Professional Series hair care
products, Fusion Mach3 sensitive and disposable skin products.
All of these are scheduled to be launched in January.
Further Job Cuts
P&G maintained that its productivity and cost savings plan
will generate $10 billion in cost reductions by the end of fiscal
2016. P&G's plan also include a workforce reduction of 5,700
by the end of fiscal 2013. The plan was announced in February
2012 and aims to reduce spending across all areas like supply
chain, research & development, marketing and overheads. The
plan also includes improving net manufacturing productivity by 5%
annually.
Till the end of October, the company had reduced around 4,700
positions, which is almost 80% of its target. On top of the
current plans, P&G plans to further reduce non-manufacturing
jobs by an additional 2% to 4% per year from fiscal 2014 through
2016.
Improved Share Repurchase Outlook
P&G hiked its share repurchase expectations from $4
billion to the range of $4 billion-$6 billion. Moreover, if cash
generation remains strong, P&G believes it should be able to
meet the top end of the guidance. The company expects to
repurchase stock worth $4 billion by the end of fiscal second
quarter.
Outlook Reaffirmed
The consumer giant reaffirmed its second quarter and fiscal
2013 guidance provided during the first quarter conference call
held late last month.
Management continues to expect organic sales to grow in the
range of 2% to 4%. Net revenue is expected to remain flat or
increase upto 1% from 2012 levels. Currency is expected to hurt
revenues by 2% to 3%. Pricing is expected to add 2 percentage
points to top-line growth.
The company also maintained its previously provided core
earnings guidance range of $3.80-$4.00, which represents a
year-over-year movement of a negative 1% to a positive 4%.
However, adjusting for headwinds from pension and benefit plans
and import restrictions in Argentina and mandated price
reductions in Venezuela, earnings are expected to grow in the
range of 2%-7%. Capital expenditure is expected to be around 5.5%
of sales in fiscal 2013.
For the second quarter of fiscal 2013, the company expects
revenues to range between negative 1% to a positive 1%. Organic
sales are expected to grow between 1% and 3%. Foreign exchange is
expected to hurt revenue growth by 2%. Core earnings are expected
to remain in the range of $1.07 to $1.13, representing a movement
in the range of negative 2% to positive 4%. The core earnings
guidance includes gains related to the divestiture of P&G's
bleach business in Italy.
Our Recommendation
We currently have a long-term Neutral recommendation on
P&G. However, the stock carries a Zacks #3 Rank (a short-term
Hold rating). A peer company
Kimberly Clark Corporation
(
KMB
) carries a better rank, Zacks #2 ( a short-term 'Buy'
rating).
P&G's first quarter results were better than expectations.
Slowdown in developed nations and commodity cost increases
resulted in a series of disappointing earnings results and
guidance cuts for P&G. However, the fourth quarter 2012 and
first quarter 2013 results were much better than past quarters.
Overall, we are encouraged by P&G's strong brand recognition,
diversified portfolio, rapid growth in developing nations,
impressive product development capabilities and marketing
prowess.
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 keeping in pace with the peer companies. 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. We would prefer to wait and see substantial results from
the turnaround efforts.
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