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On Feb 28, we maintained a Neutral recommendation on The Procter & Gamble Company (PG - Analyst Report), following appraisal of its second quarter 2013 results.

Why the Neutral Recommendation?

The consumer giant’s second-quarter earnings of $1.22 surpassed the Zacks Consensus Estimate by almost 10% and improved 12% from the prior-year level driven by organic sales growth and improved productivity. Net sales elevated 2% driven by improving global market share trends. Also, both earnings and revenues were better than management’s expectations.

Fiscal 2012 was a tough year for P&G and the company plans to implement some meaningful changes to re-accelerate its top and bottom line. In addition, the company implemented costs savings and productivity improvement initiatives in order to improve margins. We believe P&G is gaining momentum from these efforts as evident from 2 back-to-back solid quarterly results.

Following solid first half results, P&G raised its sales and earnings outlook for fiscal 2013. However, the earnings guidance was slightly reduced in mid February to include the impact of the Venezuelan currency devaluation.

The earnings guidance cut in mid February resulted in some downward revisions in estimates. Despite the downward revisions, the Zacks Consensus Estimate for 2013 improved 1.0% in both 2013 and 2014 to $4.06 and $4.38 over the last 30 days. This may be due to increased confidence of analysts in the future prospects of this maker of Tide detergent and Olay shampoo.

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.

As part of its turnaround plans, P&G has laid out plans to improve results in developed markets while maintaining momentum in the developing nations. The company is focusing resources on the 40 largest and most profitable businesses, most of which are in developed markets. These businesses account for about 50% of sales and 70% of operating profit. The company is also focusing on driving its 20 biggest innovations like Tide Pods, Always Radiance, Bounty Trap & Lock and Bounty Unstoppables in more markets in fiscal 2013. Moreover, the company is concentrating on its 10 most important developing markets.

We would, however, remain on the sidelines until we witness some additional progress from the turnaround efforts. Moreover, though some signs of modest economic recovery and improving consumer confidence can be seen in the U.S., there is still great uncertainty as the fiscal cliff looms. 2013 is also not expected to see any robust economic growth in the U.S.

Other Stocks to Consider

P&G carries a Zacks Rank #2 (Buy). Some other consumer staples stocks worth considering include Church & Dwight Co. Inc. (CHD - Snapshot Report), Kellogg Company (K - Analyst Report) and The Hershey Company (HSY - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).

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