We have maintained our Neutral rating on
The Procter & Gamble Company
) following appraisal of the third quarter 2012 results.
P&G's adjusted earnings of 94 cents per share in the third
quarter beat the Zacks Consensus Estimate by a penny. However,
earnings were flat from prior-year levels as benefits from top-line
growth and cost savings were offset by rising commodity costs.
P&G's net sales increased 2% to $20.2 billion. Organically,
revenues were up 3% driven primarily by pricing. However, margins
declined due to high commodity costs.
Moreover, the company cut its earnings outlook for fiscal 2012
due to Venezuela price regulations, rising input costs and economic
uncertainty in Western Europe and U.S.
Slowdown in the developed nations and commodity cost increases
create persistent overhangs. Moreover, P&G is seeing business
disruption and substantial price reductions in Venezuela following
the publication of new price control regulations in the country.
Accordingly, retailers delayed orders in the third quarter of
fiscal 2012 which hurt the company's top line by 0.5%. Despite
these near-term challenges, we are more confident of the company's
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 26 power brands each generating
over $1 billion in revenues. 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 bottom-line growth.
Further, the company focuses on improving its product portfolio
through strategic initiatives which enable it to pay more attention
to its profitable businesses. Very recently the company completed
the divestiture of its snacks unit, Pringles, to
) to re-focus on beauty and personal care products.
The company is increasing its presence in the fast growing
developing markets as the developed nations witness volume declines
due to market saturation, low disposable incomes of consumers and
competitive activity. The company is working on this strategy by
focusing on affordability, accessibility and brand awareness. The
company's volume and market share growth trends in these developing
markets have been encouraging. Developing markets constituted about
35% of global sales of the company in fiscal 2011. Management
believes that their contribution to global sales will reach about
37% of sales and about 45% of volume by the end of fiscal 2012.
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
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