We expect The Procter & Gamble CompanyPG or P&G to beat expectations when it reports third-quarter fiscal 2016 results on Apr 26, before the market opens.
Last quarter, the company delivered a positive earnings surprise of 6.12%.
Despite sales remaining muted, the consumer goods company delivered positive earnings surprises in the past four quarters with an average surprise of 4.19%.
Let's see how things are shaping up for the upcoming announcement.
Why a Likely Positive Surprise?
Our proven model shows that P&G is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: P&G's Earnings ESP , which represents the difference between the Most Accurate estimate (82 cents per share) and the Zacks Consensus Estimate (81 cents), stands at +1.24%. This is meaningful and indicates a likely positive earnings surprise.
Zacks Rank: P&G has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. Conversely, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.
The combination of P&G's Zacks Rank #3 and +1.24% ESP makes us confident of an earnings beat.
What's Driving the Better-than-Expected Earnings?
P&G operates in a challenging environment where market growth rates are constantly decelerating, mainly due to slow growth in developing markets. The company has been struggling to grow sales which have been overshadowing its relatively better margins. Significant negative Fx impact, weak volumes, divestures and slowing market growth have been affecting sales.
In order to accelerate top-line growth, P&G has been increasing investments, which in turn improved organic sales trends in the second quarter. Management is optimistic of witnessing organic sales growth in the third and the fourth quarters through premium innovations, increased selling capabilities in the major markets, and targeted price reductions to narrow consumer value gaps.
Despite top-line pressures, factors like pricing gains, productivity savings and lower overhead costs have been expanding P&G's margins. Constant currency EPS is expected to rise in a mid-single-digit range in the second half.
Stocks to Consider
Some stocks in the consumer staples sector that have both a positive Earnings ESP and a favorable Zacks Rank include:
Church & Dwight Co. Inc. CHD with an Earnings ESP of +1.19% and a Zacks Rank #2.
Kellogg Company K with an Earnings ESP of +1.08% and a Zacks Rank #3.
Mead Johnson Nutrition Company MJN with an Earnings ESP of +2.41% and a Zacks Rank #3.
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