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Analyst Blog

On Feb 28, 2014, we issued an updated research report on The Procter & Gamble Company (PG - Analyst Report).

On Jan 24, the consumer goods giant reported mixed fiscal second-quarter 2014 wherein earnings beat the Zacks Consensus Estimate but revenues missed the same. Currency headwinds were primarily responsible for lowering earnings by 1%. Excluding currency headwinds, earnings increased 8% in the quarter as healthy organic sales growth, cost savings and lower taxes made up for the lower margins in the quarter. Organically (excluding the impact of acquisitions, divestitures and foreign exchange), revenues were up 3% due to growth in both volume and pricing. Though margins declined year over year, they were better than the previous quarter.

However, P&G slashed the fiscal 2014 sales and earnings forecasts in Feb 2014 to reflect the recent emerging-market currency devaluations. The lowered guidance led to significant downward revision in estimates for this Zacks Rank #4 (Sell) stock. The Zacks Consensus Estimate for fiscal 2014 declined 1.4% and that for 2015 went down almost 2% over the last 30 days.

Overall, we are encouraged by P&G’s strong brand recognition, diversified portfolio, rapid growth in developing nations, impressive product development capabilities and marketing prowess. The company’s improving market share trends, disciplined geographic/product expansion and accelerated cost savings bode well for further growth.

However, currency headwinds, rising commodity costs, increasing competitive pressures, challenging consumer spending environment in the U.S. and volatile market dynamics in other countries remain overhangs. Also, we would like to see significant margin improvement before becoming more positive on the stock.

Key Picks from the Sector

Other stocks worth considering in the consumer staples sector include WD-40 Company (WDFC - Snapshot Report), The Hershey Company (HSY - Analyst Report) and The Hain Celestial Group, Inc. (HAIN - Analyst Report). All these companies carry a Zacks Rank #2 (Buy).

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