A month has gone by since the last earnings report for Procter & Gamble (PG). Shares have lost about 0.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is P&G due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Procter & Gamble’s Q1 Earnings & Sales Beat Estimates
Procter & Gamble reported first-quarter fiscal 2020 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. This marked the company’s 18th straight earnings beat. Earnings and sales also improved on a year-over-year basis. Moreover, the company raised its guidance for fiscal 2020.
Procter & Gamble’s core earnings of $1.37 per share improved 22% year over year and outpaced the Zacks Consensus Estimate of $1.24. Meanwhile, currency-neutral core earnings per share (EPS) grew 24%.
Sales in Detail
Procter & Gamble reported net sales of $17,798 million, beating the Zacks Consensus Estimate of $17,465 million and improving 6.6% year over year. However, the top line was hurt by currency fluctuations of about 2%.
Organically (excluding the impact of acquisitions, divestitures and foreign exchange), revenues grew 7%, driven by 4% rise in organic shipment volume. Further, organic sales benefited 1% from increased pricing and 2% from favorable mix. Strong Personal Health Care, and Skin and Personal Care categories along with robust gains in Japan mainly aided the company’s mix. Notably, all of these have higher than average selling prices.
Moreover, all of the company’s business segments reported organic sales growth. Organic sales improved 10% for the Beauty segment, 9% for Health Care, 8% for Fabric & Home Care, 5% for Baby, Feminine and Family Care, and 1% for the Grooming segment.
Net sales at Beauty, Health Care, Fabric & Home Care, and Baby, Feminine and Family Care segments grew 8%, 20%, 6% and 4%, respectively. Meanwhile, sales declined 1% for the Grooming segment.
In the reported quarter, core gross margin increased 190 basis points (bps) year over year to 51.3%, including nearly 10 bps of adverse impact of foreign currency. On a currency-neutral basis, core gross margin expanded 200 bps, backed by gains from productivity savings, higher pricing, commodity cost declines, fixed cost leverage and other benefits. This uptick was partly offset by unfavorable product mix.
Core selling, general and administrative expenses (SG&A), as a percentage of sales, declined 70 bps to 27%. Currency-neutral core SG&A costs decreased 60 bps, driven by savings from overhead and marketing expenses, and gains from sales leverage. This was partly negated by marketing investments as well as inflation and other impacts like augmented digital investments and incentive compensation costs.
Moreover, core and currency-neutral operating margin expanded 260 bps to 24.3%, driven by 160 bps of total productivity cost savings.
Procter & Gamble ended the reported quarter with cash and cash equivalents of $9,304 million, long-term debt of $20,161 million, and total shareholders’ equity of $46,984 million.
Cash flow from operating activities amounted to $4,169 million for the fiscal first quarter, while adjusted free cash flow productivity was 91%. Furthermore, the company returned nearly $4.9 billion of cash to its shareholders. This included dividend payments worth $1.9 billion and share buybacks of roughly $3 billion.
For fiscal 2020, the company increased its view for adjusted free cash flow productivity to 95% from 90% stated earlier. It anticipates paying out more than $7.5 billion in dividends and repurchasing $6-$8 billion of common shares in fiscal 2020.
Fiscal 2020 Guidance
Driven by strong top-line growth, margin expansion and cash productivity witnessed in the fiscal first quarter, Procter & Gamble raised its view for fiscal 2020. The company now projects all-in and organic sales growth of 3-5% compared with 3-4% mentioned earlier. The guidance includes a modest impact of adverse foreign currency, which is likely to be mostly offset by slight gain from acquisitions and divestitures.
Moreover, the company now projects core EPS growth of 5-10% for fiscal 2020 compared with 4-9% mentioned earlier. In fiscal 2019, it reported core earnings of $4.52 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
At this time, P&G has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise P&G has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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