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The Procter & Gamble Company’s (PG - Free Report) fourth-quarter fiscal 2016 earnings and revenues exceeded expectations.
P&G’s fiscal fourth-quarter adjusted earnings of 79 cents per share beat the Zacks Consensus Estimate of 74 cents by 6.75%. However, the bottom line decreased 15% from the prior-year period. Excluding currency headwinds of 3 percentage point (pp), earnings per share declined 8% due to soft sales during the quarter.
P&G’s reported net sales of $16.1 billion narrowly beat the Zacks Consensus Estimate of $15.84 billion by 1.64%. The top line, however, declined 3% as currency headwinds hurt sales.
With around 60% of the company’s business generated outside North America, currency headwinds affected sales as a strong dollar lowered the value of virtually every currency in the world. This significantly lowered the value of international sales, in turn, hampering the top line.
Sales also declined due to a 2% negative contribution from Venezuela deconsolidation and minor brand divestitures. Notably, the same factors had resulted in a sales decline in the fiscal third quarter in spite of pricing gains.
Brand divestures and management’s portfolio-reshaping efforts are also hurting P&G’s sales. Since 2014, the company has been engaged portfolio strengthening and simplification plans to streamline its business and focus more on the biggest brands. Per the program, which is nearing completion, the company has divested almost 60% of the brands (roughly 100 brands) that were witnessing decline in sales and profits to focus on 65 core brands across 10 categories.
Organically (excluding the impact of acquisitions, divestitures and foreign exchange), revenues grew 2% on the back of an increase in organic shipment volume of 2%.
All the five business segments recorded positive organic sales growth. The Fabric Care, Baby, Feminine and Family Care and Beauty segments reported 2% rise in the fiscal fourth quarter. The Grooming segment went up 7%, while Health Care also grew 8% during the quarter.
Rising Margins
Core gross margin expanded 160 basis points (bps) to 47.9% as productivity cost savings, lower commodity costs and pricing benefits were offset by currency headwinds, lower volume and unfavorable geographic/product mix.
Core selling, general and administrative expense (SG&A) margin increased 310 bps (as a percentage of sales) to 32.4% owing to benefits from overhead spending reductions due to productivity efforts. Core operating margin contracted 150 bps to 15.5% owing to higher general expenses.
P&G has undertaken an aggressive cost-cutting plan to reduce spending across all areas like supply chain, research & development, marketing and overheads.
Fiscal 2016 Results
Core earnings per share dipped 2% to $3.67 and beat estimates of 96 cents.
Net sales, including a negative 6 pp impact from foreign exchange and 2% from the combined impacts of Venezuela and minor brand divestitures, were down 8% to $65.3 billion. Organic sales grew 1% due to positive pricing. Sales beat the Zacks Estimate of $4.12 billion.
Fiscal 2017 Guidance
The Cincinnati-based company expects organic sales growth of approximately 2% for fiscal 2017. It expects the combined foreign exchange headwind and minor brand divestitures to reduce sales growth by about 1 pp. P&G estimates organic 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. For first-quarter fiscal 2017, the company expects earnings to be disproportionately affected by foreign exchange headwinds.
P&G carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the consumer staples sector include Altria Group Inc. (MO - Free Report) , Nu Skin Enterprises inc. (NUS - Free Report) and Helen of Troy Limited (HELE - Free Report) . All of them hold a Zacks Rank #2 (Buy).
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Procter & Gamble (PG) Q4 Earnings & Sales Beat Estimates
The Procter & Gamble Company’s (PG - Free Report) fourth-quarter fiscal 2016 earnings and revenues exceeded expectations.
P&G’s fiscal fourth-quarter adjusted earnings of 79 cents per share beat the Zacks Consensus Estimate of 74 cents by 6.75%. However, the bottom line decreased 15% from the prior-year period. Excluding currency headwinds of 3 percentage point (pp), earnings per share declined 8% due to soft sales during the quarter.
Quarterly Discussion
P&G’s reported net sales of $16.1 billion narrowly beat the Zacks Consensus Estimate of $15.84 billion by 1.64%. The top line, however, declined 3% as currency headwinds hurt sales.
With around 60% of the company’s business generated outside North America, currency headwinds affected sales as a strong dollar lowered the value of virtually every currency in the world. This significantly lowered the value of international sales, in turn, hampering the top line.
PROCTER & GAMBL Price, Consensus and EPS Surprise
PROCTER & GAMBL Price, Consensus and EPS Surprise | PROCTER & GAMBL Quote
Sales also declined due to a 2% negative contribution from Venezuela deconsolidation and minor brand divestitures. Notably, the same factors had resulted in a sales decline in the fiscal third quarter in spite of pricing gains.
Brand divestures and management’s portfolio-reshaping efforts are also hurting P&G’s sales. Since 2014, the company has been engaged portfolio strengthening and simplification plans to streamline its business and focus more on the biggest brands. Per the program, which is nearing completion, the company has divested almost 60% of the brands (roughly 100 brands) that were witnessing decline in sales and profits to focus on 65 core brands across 10 categories.
Organically (excluding the impact of acquisitions, divestitures and foreign exchange), revenues grew 2% on the back of an increase in organic shipment volume of 2%.
All the five business segments recorded positive organic sales growth. The Fabric Care, Baby, Feminine and Family Care and Beauty segments reported 2% rise in the fiscal fourth quarter. The Grooming segment went up 7%, while Health Care also grew 8% during the quarter.
Rising Margins
Core gross margin expanded 160 basis points (bps) to 47.9% as productivity cost savings, lower commodity costs and pricing benefits were offset by currency headwinds, lower volume and unfavorable geographic/product mix.
Core selling, general and administrative expense (SG&A) margin increased 310 bps (as a percentage of sales) to 32.4% owing to benefits from overhead spending reductions due to productivity efforts. Core operating margin contracted 150 bps to 15.5% owing to higher general expenses.
P&G has undertaken an aggressive cost-cutting plan to reduce spending across all areas like supply chain, research & development, marketing and overheads.
Fiscal 2016 Results
Core earnings per share dipped 2% to $3.67 and beat estimates of 96 cents.
Net sales, including a negative 6 pp impact from foreign exchange and 2% from the combined impacts of Venezuela and minor brand divestitures, were down 8% to $65.3 billion. Organic sales grew 1% due to positive pricing. Sales beat the Zacks Estimate of $4.12 billion.
Fiscal 2017 Guidance
The Cincinnati-based company expects organic sales growth of approximately 2% for fiscal 2017. It expects the combined foreign exchange headwind and minor brand divestitures to reduce sales growth by about 1 pp. P&G estimates organic 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. For first-quarter fiscal 2017, the company expects earnings to be disproportionately affected by foreign exchange headwinds.
P&G carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the consumer staples sector include Altria Group Inc. (MO - Free Report) , Nu Skin Enterprises inc. (NUS - Free Report) and Helen of Troy Limited (HELE - Free Report) . All of them hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>