On Sep 20, we maintained a Neutral recommendation on
he Procter & Gamble Company
), despite improved first-quarter fiscal 2013 results. Though the
company's new strategic plan looks encouraging, we prefer to wait
until we see substantial benefits from it.
Why the Neutral Recommendation?
After a slow third quarter, P&G reported decent
fourth-quarter fiscal 2013 results beating the Zacks Consensus
Estimate for both earnings and revenues. P&G's fourth-quarter
fiscal 2013 adjusted earnings of 79 cents per share surpassed the
Zacks Consensus Estimate of 77 cents by 2.6%. Earnings beat
management's guidance range of 69 cents-77 cents but declined 4%
from the prior-year level. Encouragingly however, earnings
declined less than management's expectation of a 6%-16%
shortfall. Solid volume gains, strong cost savings,
lower-than-expected taxes and reduced share count (due to
significant buybacks) made up for the unfavorable mix, currency
headwinds and higher marketing spend in the quarter.
Sales increased 2% to $20.7 billion as robust innovation and
accelerated marketing boosted volumes in the quarter. Sales also
slivered past the Zacks Consensus Estimate of $20.59 billion.
P&G undoubtedly commands solid long-term fundamentals with
strong brand recognition, diversified portfolio, rapid growth in
developing nations, impressive product development capabilities
and marketing prowess.
In order to improve the company's operating performance, new
Chief Operating Officer (CEO), A.G. Lafley, unveiled a strategy
which focuses on value creation for shareholders through sales
growth, gross and operating margin expansion and strong cash flow
productivity. In order to achieve this, the company laid out four
functions. Firstly, the company will invest selectively in core
businesses, which include the most profitable categories, brands,
markets, channels and customers. The other three functions
include, making strategic, focused investments in innovation and
go-to-market capabilities, accelerating cost savings and
productivity improvements and improving operating discipline.
Though the plan sounds encouraging, we prefer to wait until it
drives substantial organic revenue growth. Moreover, though some
signs of modest economic recovery and improving consumer
confidence can be seen in the U.S., there is still great
uncertainty. The U.S. consumers are burdened with higher gasoline
prices, payroll tax increases and delayed tax refund checks.
These external forces might restrict consumers' discretionary
spending in addition to slow job growth, high interest rates and
tightened credit availability. Moreover, P&G is facing
volatile market dynamics in countries like Venezuela and
Argentina. The persistently sluggish European economic conditions
also create an overhang.
P&G carries a Zacks Rank #3 (Hold). Other consumer staples
stocks that are worth considering include
Pinnacle Foods Inc.
Green Mountain Coffee Roasters, Inc
Dole Food Company Inc.
). While PF carries a Zacks Rank #1 (Strong Buy), DOLE and GMCR
carry a Zacks Rank #2 (Buy).
DOLE FOOD CO (DOLE): Free Stock Analysis
GREEN MTN COFFE (GMCR): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
PROCTER & GAMBL (PG): Free Stock Analysis
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