What's in Store for Procter & Gamble (PG) in Q4 Earnings?

The Procter & Gamble CompanyPG is set to report fourth-quarter fiscal 2017 results on Jul 27, before the market opens. Last quarter, it delivered a positive earnings surprise of 2.13%.

In fact, despite sales remaining subdued, the consumer goods company delivered a positive earnings surprise in each of the trailing four quarters, the average being 3.97%.

Let's see how things are shaping up for this announcement.

Factors to Consider

Procter & Gamble has been struggling for the last few years to boost sales. Notably, the company's sales declined in the last 13 consecutive quarters. Major foreign exchange headwind, weak volumes, divestitures and slowing market growth have been hurting the company's sales. Soft consumer-spending environment in developed markets also adds to the worries.

The trend is not likely to change for the to-be-reported quarter. Softness in the U.S. and volatility in developing markets will likely have an adverse impact on Procter & Gamble's results. In fact, categories in the company's largest and profitable market, the U.S. (accounting for 40% of net sales), grew by less than a point in the fiscal third quarter, a lot lower than the roughly 2% growth registered in the first half of fiscal 2017. Overall, the company posted flat organic sales growth in developed markets.

Meanwhile, Procter & Gamble has been taking various restructuring initiatives aimed at generating higher profit and lowering costs. These initiatives have helped the company to accelerate margins growth amid the slowdown in sales. However, fiscal third quarter's gross as well as operating margins fell despite benefitting from productivity savings. This was due to higher input costs, a planned increase in marketing spending, higher R&D costs, and lower pricing due to increased competition.

Hence, lower sales accompanied by higher commodity costs, more investments for marketing and increased R&D spending to push demand might adversely affect margins, thereby putting pressure on bottom line in the to-be-reported quarter. This will be partly offset by cost-saving measures.

For the fiscal fourth quarter, the Zacks Consensus Estimate for earnings is pegged at 78 cents, reflecting a decrease of 0.8% year over year. Meanwhile, the consensus estimate for revenues is pegged at $15.98 billion, implying a 0.8% decline.

Earnings Whispers

Our proven model does not conclusively show that Procter & Gamble is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as you will see below.

Zacks ESP: Procter & Gamble's Earnings ESP is 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 78 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Procter & Gamble's Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident about an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Procter & Gamble Company (The) Price and EPS Surprise

Procter & Gamble Company (The) Price and EPS Surprise | Procter & Gamble Company (The) Quote

Stocks to Consider

Here are a few consumer staples companies that, according to our model, have the right combination of elements to post an earnings beat this quarter:

Dr Pepper Snapple Group, Inc DPS has an Earnings ESP of +2.36% and a Zacks Rank #3. The company is slated to release quarterly results on Jul 27.

Church & Dwight Company, Inc. CHD has an Earnings ESP of +2.56% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

It is slated to release quarterly results on Aug 3.

Tyson Foods, Inc. TSN has an Earnings ESP of +1.64% and a Zacks Rank #2. Tyson is slated to release quarterly results on Aug 7.

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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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