Quantcast

Procter & Gamble Navigates Soft Sales With Cost-Saving Plans


Shutterstock photo

The Procter & Gamble Company PG or P&G has been struggling to boost sales for the last few quarters. A soft consumer spending environment in the United States and slowing global market growth are pressing concerns for the company.

Resultantly, P&G's shares have gained only 5% so far this year, underperforming the industry 's growth of 14.2%.

Also, the trend in current-quarter and current-year earnings estimate revisions is not satisfactory as it has remained stable over the past 30 days. Nonetheless, this $65-billion conglomerate remains focused on balanced growth through improved product, packaging, and marketing initiatives and productivity cost-saving plan.






Initiatives to Counter Slow Sales Growth

P&G's sales have remained subdued in recent quarters with net sales increasing a meager 1% in its first quarter of fiscal 2018. Organic sales increased 1% in the quarter, softer than the last quarter's 2% growth. The slower growth rate was due to the challenges thrown by a tough base period comparison and 40 basis points (bps) impact from recent targeted pricing actions in U.S. blades and razors and ongoing portfolio clean-up efforts. Natural disasters were a further 30 bps headwind in the quarter as well.

Importantly, this 1% organic sales growth was driven by volume instead of pricing, which has been flat. P&G could not push its prices up and has seen some inflation in input costs. Hence, margins have been trending down a bit despite continued productivity gains.

Global category growth was below 2.5% during the quarter, a modest deceleration from the fourth quarter of fiscal 2017, with much of this slowdown occurring in the United States. While developing market growth was around 5%, developed market growth was just 0.5%. Weakening global share reflects poor execution in key markets of the company's business.

Nevertheless, management has outlined priorities to accelerate top and bottom-line growth. Importantly, in order to boost its profit level, P&G is re-working its supply chain to lower cost, reduce inventory and improve customer service levels by closing down underperforming plants, setting up new multi-category facilities, localizing manufacturing, upgrading, automating and standardizing operations and employing smart automation and digitization. Currently, the company expects to generate up to an additional $10 billion of cost savings over the next five years (fiscal 2017-2021) in areas including supply chain and cost of goods sold, marketing and digitization and promotional spend effectiveness.

P&G's adjusted earnings in the last reported quarter increased 6% from the year-ago level aided by productivity cost savings. SG&A expenses, as a percentage of sales, improved 10 bps helped by productivity savings from overhead, agency fee and ad production costs.

In addition to cost cutting, P&G is focused on initiatives to boost its top line. Management has focused its priorities behind its four largest categories: Baby Care, Fabric Care, Hair Care, and Grooming and its two largest markets: the United States and China.

The latest acquisition of Native, a startup competitor that specializes in direct-to-consumer personal care products, speaks off the company's efforts to reinvigorate investors' confidence. Although the financial terms of the deal were not disclosed, it marks P&G's first buyout in eight years.

Zacks Rank & Stocks to Consider

P&G currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the same sector are Pilgrim's Pride Corporation PPC and Tyson Foods, Inc. TSN , sporting a Zacks Rank #1 (Strong Buy), and Unilever PLC UL , with a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Pilgrim's Pride is expected to register 62.7% EPS growth this year.

Tyson Foods has an expected EPS grow rate of 9.4% for this year.

Unilever PLC projects earnings growth of 26% for 2017.

Zacks' Hidden Trades

While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?

Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.

Click here for Zacks' secret trade>>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Tyson Foods, Inc. (TSN): Free Stock Analysis Report

Pilgrim's Pride Corporation (PPC): Free Stock Analysis Report

Unilever PLC (UL): Free Stock Analysis Report

Procter & Gamble Company (The) (PG): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Stocks
Referenced Symbols: TSN , PPC , UL , PG



More from Zacks.com

Subscribe






Zacks.com
Contributor:

Zacks.com

Equity Research










Research Brokers before you trade

Want to trade FX?