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Procter & Gamble (PG) Up 7.5% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Procter & Gamble Company (The) PG . Shares have added about 7.5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Procter & Gamble Q1 Earnings & Sales Top, View Intact

The Procter & Gamble Company's first-quarter fiscal 2017 earnings and revenues exceeded expectations. P&G's fiscal first-quarter adjusted earnings of $1.03 per share beat the Zacks Consensus Estimate of $0.98 by 5.1%. The bottom line also increased 5% from the prior-year quarter. Currency-neutral core EPS per share improved 12% on higher volumes.

Sales in Details

P&G's reported net sales of $16.52 billion that beat the Zacks Consensus Estimate of $16.46 billion by 0.4%. The top line, however, remained unchanged year over year. Foreign exchange had a negative impact of 3% on sales.

Organically (excluding the impact of acquisitions, divestitures and foreign exchange), revenues grew 3% on the back of a 3% increase in organic shipment volumes.

All the five business segments recorded organic sales growth. Health Care and Fabric & Home Care segments reported 7% and 4% growth, respectively, in the fiscal first quarter. Beauty and Grooming segments witnessed 3% organic sales growth, whereas Baby, Feminine & Family Care segment reported 2%.

In developing markets, organic sales were up 6% on 3% volume growth, as the pricing osted the top line. On the other hand, in developed markets, organic sales were up 2% on 4% volume growth, reflecting heightened promotional activity in part to address price gaps in certain categories.

Segment Discussion

Beauty: This segment declined 1% year over year to $2.99 billion due to currency headwinds. Foreign exchange hurt revenues by 2%, while acquisitions/divestures/Venezuela deconsolidation had a 1% positive impact on sales. Organic sales grew 3% driven by positive pricing and higher volumes. Price was up 1%, while mix was up 1%. Organic volumes rose 2%.

Skin and personal care gained with demand for the SK-II brand, and hair care was higher due to Pantene and Head & Shoulders (partly offset by declines for smaller brands).

The segment's net earnings declined 5% to $592 million.

Grooming: Grooming was down 1% to $1.7 billion. Currency had a 3% negative impact on revenue growth, while acquisitions/divestures/Venezuela deconsolidation contributed 1% to sales. Organic sales rose 3% driven by higher pricing and volumes.

Price increases added 1% to revenue growth. Organic volumes rose 3% while mix had a neutral impact.

The segment's net earnings rose 6% to $415 million.

Health Care: Healthcare products rose 4% to $1.9 billion. Currency had a negative impact of 3% on sales, while acquisitions/divestures/Venezuela deconsolidation had a neutral impact. Organic sales rose 7% on the back of higher pricing and volumes.

Price grew 1%, mix climbed 1% while organic volume rose 5%. Personal health care grew at a double-digit rate with innovation and pricing, and oral care benefited from development in Oral B brushes and paste.

The segment's net earnings inched up 1% to $320 million.

Fabric Care and Home Care: The segment increased 1% to $5.3 billion. Currency had a negative impact of 2% on sales, while acquisitions/divestures/Venezuela deconsolidation had a 1% positive impact. Organic sales rose 4% on higher organic volumes. While price declined 1%, mix improved 1%. Organic volumes rose 4%.

Fabric care was higher in developed markets with investments in innovation and marketing, and home care expanding at mid-single digits globally.

The segment's net earnings declined 3% to $728 million.

Baby Care, Feminine and Family Care: The segment declined 1% to $4.6 billion due to currency headwinds of 3%. Acquisitions/divestures/Venezuela deconsolidation had a 1% positive impact on sales. Organic sales rose 2% as all three businesses experienced solid volume growth with innovation and some pricing adjustments to improve value gaps. While organic volumes rose 4%, price declined 1%. Mix had a 1% negative impact on sales.

The segment's net earnings declined 7% to $697 million.

Rising Margins

Core gross margin expanded 50 basis points (bps) to 51.6% as productivity cost savings and higher volume benefits were offset by currency headwinds, unfavorable mix, innovation and capacity investments, and higher commodity costs.

Core selling, general and administrative expense (SG&A) margin increased 40 bps (as a percentage of sales) to 28.3% owing to benefits from overhead and marketing spending reductions due to productivity efforts. Core operating margin expanded 20 bps to 23.4% owing to productivity cost savings.

P&G has undertaken an aggressive cost-cutting plan to reduce spending across all areas like supply chain, research & development, marketing and overheads.

Financials

As of Sep 30, 2016, the company's cash and cash equivalents were $7,456 million, up from $7,102 million at the end of fiscal 2016 (as of Jun 30, 2016). Long-term debt was $18,910 million as of Sep 30, 2016, slightly down from $18,945 million at fiscal 2016-end.

Cash flow from operating activities were $3,025 million during the quarter, down from $3,538 million a year ago.

Fiscal 2017 Guidance

The Cincinnati-based company maintained its organic sales growth projection at approximately 2% for fiscal 2017. It expects the combined foreign exchange headwind and minor brand divestitures to reduce sales by about 1 percentage points. P&G estimates all-in sales growth of about 1% for fiscal 2017.

Core earnings per share are expected to grow in mid-single digits as against the fiscal 2016 core earnings of $3.67 per share.

Currency is expected to be only a small headwind in 2017.

Management expects "small'' improvement in profit margins.

Capital expenditure is expected to be 5%-5.5% of sales.

Core effective tax rate is expected to be in line with the fiscal 2016 rate.

Free cash flow productivity is anticipated to be 90% or more of adjusted net earnings.

In fiscal 2017, the company expects to repurchase shares worth $15 billion (including those exchanged in the Coty transaction) and pay more than $7 billion in dividends.

Average share count is estimated to decline by approximately 4% in fiscal 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to five lower. While looking back an additional 30 days, we can see even more downward momentum. There have been seven downward revisions in the last two months.

Procter & Gamble Company (The) Price and Consensus

Procter & Gamble Company (The) Price and Consensus | Procter & Gamble Company (The) Quote

VGM Scores

At this time, Procter & Gamble's stock has a subpar score of 'D' on both growth and momentum front

Following the exact same course, the stock was allocated also a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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


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

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