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Why Is P&G (PG) Up 5.8% Since Last Earnings Report?
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It has been about a month since the last earnings report for Procter & Gamble (PG - Free Report) . Shares have added about 5.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is P&G due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Procter & Gamble’s Q2 Earnings Beat, Ups View
Procter & Gamble, popularly known as P&G, reported second-quarter fiscal 2019 results, wherein top and bottom lines surpassed the Zacks Consensus Estimate. This marked the company’s 15th straight earnings beat. Further, earnings improved year over year while sales remained flat, largely due to adverse currency fluctuations. The company outlined a robust view for fiscal 2019.
P&G’s core earnings for the fiscal second quarter were $1.25 per share, up 5% year over year. The company’s earnings beat the Zacks Consensus Estimate of $1.21. The upside was primarily driven by benefits from tax reforms. Currency-neutral core earnings per share (EPS) improved 13%.
Sales in Detail
P&G reported net sales of $17,438 million, which surpassed the Zacks Consensus Estimate of $17,192 million. However, the top line remained nearly flat year over year and was hurt by currency fluctuations to the tune of about 4%.
Organically (excluding impacts of acquisitions, divestitures and foreign exchange), revenues grew 4%, driven by 2% rise in shipment volumes. Further, organic sales benefited 1% each from favorable mix and pricing. Notably, all of the business segments, except Grooming, reported organic sales growth.
In the reported quarter, Beauty, and Fabric & Home Care segments registered organic sales growth of 8% and 6%, respectively. Organic sales improved 5% for the Health Care division and 3% for the Baby, Feminine and Family Care segment. Conversely, organic sales for the Grooming segment dipped 3%.
Net sales for Beauty, and Fabric & Home Care segments grew 4% and 2%, respectively. However, net sales declined 9% at the Grooming segment and 1% at Baby, Feminine & Family Care, while sales for the Health Care segment remained flat year over year.
Margins
Core gross margin decreased 80 basis points (bps) to 49.6%, including nearly 60 bps adverse impact from currency headwinds. On a currency-neutral basis, core gross margin contracted 20 bps due to higher commodity costs, unfavorable mix, innovation reinvestments and other impacts. This was somewhat cushioned by gains from productivity savings and pricing.
Core selling, general and administrative expenses (SG&A) decreased 80 bps (as a percentage of sales) to 26.7%. Currency-neutral core SG&A costs declined 100 bps, driven by savings from overhead, media, agency fee and advertising production cost productivity, as well as benefits of sales leverage.
Core operating margin declined 10 bps to 22.8% while currency-neutral core operating profit margin expanded 80 bps. Currency headwinds impacted core operating margin by 90 bps.
Financials
Procter & Gamble ended the reported quarter with cash and cash equivalents of $3,696 million, long-term debt of $21,514 million, and total shareholders’ equity of $54,443 million.
Cash flow from operating activities amounted to $7,574 million for the first six months of fiscal 2019. Operating cash flow for the fiscal second quarter was $4 billion and free cash flow productivity was 103%.
During the quarter under review, the company returned nearly $2.6 billion to stockholders through dividend payments worth $1.9 billion and share buybacks of roughly $0.8 billion.
The company is on track to surpass its targeted adjusted free cash flow productivity of 90% for fiscal 2019. During the fiscal year, it expects to return cash to shareholders through dividends worth more than $7 billion and share repurchases worth up to $5 billion.
Fiscal 2019 Guidance
Following the strong quarter, the company raised the upper end of the fiscal 2019 organic sales guidance by 1%. Consequently, organic sales for the fiscal year are now estimated to increase 2-4%. The company now expects all-in sales to be down 1% to up 1% in fiscal 2019. Earlier, the company expected all-in sales growth between down 2% and flat. Its all-in sales guidance includes currency impacts of nearly 3-4%. However, acquisitions and divestitures are likely to benefit all-in sales growth for the fiscal year.
However, the company continues to anticipate core EPS growth of 3-8% in fiscal 2019 compared with fiscal 2018 core earnings of $4.22 per share. Earnings guidance includes an adverse impact of nearly $1.4 billion from foreign currency, and escalated commodity and transportation expenses. On an all-in GAAP basis, earnings per share are expected to increase 17-24%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, P&G has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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Why Is P&G (PG) Up 5.8% Since Last Earnings Report?
It has been about a month since the last earnings report for Procter & Gamble (PG - Free Report) . Shares have added about 5.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is P&G due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Procter & Gamble’s Q2 Earnings Beat, Ups View
Procter & Gamble, popularly known as P&G, reported second-quarter fiscal 2019 results, wherein top and bottom lines surpassed the Zacks Consensus Estimate. This marked the company’s 15th straight earnings beat. Further, earnings improved year over year while sales remained flat, largely due to adverse currency fluctuations. The company outlined a robust view for fiscal 2019.
P&G’s core earnings for the fiscal second quarter were $1.25 per share, up 5% year over year. The company’s earnings beat the Zacks Consensus Estimate of $1.21. The upside was primarily driven by benefits from tax reforms. Currency-neutral core earnings per share (EPS) improved 13%.
Sales in Detail
P&G reported net sales of $17,438 million, which surpassed the Zacks Consensus Estimate of $17,192 million. However, the top line remained nearly flat year over year and was hurt by currency fluctuations to the tune of about 4%.
Organically (excluding impacts of acquisitions, divestitures and foreign exchange), revenues grew 4%, driven by 2% rise in shipment volumes. Further, organic sales benefited 1% each from favorable mix and pricing. Notably, all of the business segments, except Grooming, reported organic sales growth.
In the reported quarter, Beauty, and Fabric & Home Care segments registered organic sales growth of 8% and 6%, respectively. Organic sales improved 5% for the Health Care division and 3% for the Baby, Feminine and Family Care segment. Conversely, organic sales for the Grooming segment dipped 3%.
Net sales for Beauty, and Fabric & Home Care segments grew 4% and 2%, respectively. However, net sales declined 9% at the Grooming segment and 1% at Baby, Feminine & Family Care, while sales for the Health Care segment remained flat year over year.
Margins
Core gross margin decreased 80 basis points (bps) to 49.6%, including nearly 60 bps adverse impact from currency headwinds. On a currency-neutral basis, core gross margin contracted 20 bps due to higher commodity costs, unfavorable mix, innovation reinvestments and other impacts. This was somewhat cushioned by gains from productivity savings and pricing.
Core selling, general and administrative expenses (SG&A) decreased 80 bps (as a percentage of sales) to 26.7%. Currency-neutral core SG&A costs declined 100 bps, driven by savings from overhead, media, agency fee and advertising production cost productivity, as well as benefits of sales leverage.
Core operating margin declined 10 bps to 22.8% while currency-neutral core operating profit margin expanded 80 bps. Currency headwinds impacted core operating margin by 90 bps.
Financials
Procter & Gamble ended the reported quarter with cash and cash equivalents of $3,696 million, long-term debt of $21,514 million, and total shareholders’ equity of $54,443 million.
Cash flow from operating activities amounted to $7,574 million for the first six months of fiscal 2019. Operating cash flow for the fiscal second quarter was $4 billion and free cash flow productivity was 103%.
During the quarter under review, the company returned nearly $2.6 billion to stockholders through dividend payments worth $1.9 billion and share buybacks of roughly $0.8 billion.
The company is on track to surpass its targeted adjusted free cash flow productivity of 90% for fiscal 2019. During the fiscal year, it expects to return cash to shareholders through dividends worth more than $7 billion and share repurchases worth up to $5 billion.
Fiscal 2019 Guidance
Following the strong quarter, the company raised the upper end of the fiscal 2019 organic sales guidance by 1%. Consequently, organic sales for the fiscal year are now estimated to increase 2-4%. The company now expects all-in sales to be down 1% to up 1% in fiscal 2019. Earlier, the company expected all-in sales growth between down 2% and flat. Its all-in sales guidance includes currency impacts of nearly 3-4%. However, acquisitions and divestitures are likely to benefit all-in sales growth for the fiscal year.
However, the company continues to anticipate core EPS growth of 3-8% in fiscal 2019 compared with fiscal 2018 core earnings of $4.22 per share. Earnings guidance includes an adverse impact of nearly $1.4 billion from foreign currency, and escalated commodity and transportation expenses. On an all-in GAAP basis, earnings per share are expected to increase 17-24%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, P&G has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, P&G has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.