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Here's Why You Should Add Procter & Gamble (PG) to Your Portfolio

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The Procter & Gamble Company (PG - Free Report) is an attractive stock for investment in 2021, given the boon in the soaps and cleaning materials industry on the pandemic-led increased cleaning frenzy among consumers. The need to maintain good hygiene to prevent the spread of COVID-19 has led to strong demand for hand sanitizers, soaps, toilet paper, surface cleaners, disinfecting wipes, and other personal and household cleaning essentials.

Industry experts believe that such trends are likely to persist even after the pandemic subsides, as consumers have begun to increasingly understand the importance of personal hygiene in maintaining a healthy lifestyle. This is likely to continue to serve as an opportunity for companies like Procter & Gamble.

Buoyed by the above-mentioned strong demand, shares of this Cincinnati, OH-based branded consumer products company have rallied 14.4% in the past six months compared with the industry’s growth of 12.6%.

 

 

Factors Narrating Procter & Gamble’s Growth Story

In first-quarter fiscal 2021, Procter & Gamble witnessed continued strong momentum as reflected by underlying strength in brands and appropriate strategies, which aided organic sales growth. On an organic basis (excluding the impact of acquisitions, divestitures and foreign exchange), revenues improved 9%, including a 7% rise in organic shipment volume as well as one percentage point each gain in pricing and mix.

The company reported a positive mix, owing to uneven growth of premium home, health and hygiene products, along with strength in the North American business mainly due to an increase in the pandemic-led consumption and inventory.

Additionally, Procter & Gamble remains focused on productivity and cost-saving plans to boost margins. The company’s continued investment in business alongside efforts to offset macro cost headwinds, and balance top- and bottom-line growth underscores its productivity efforts. It is witnessing cost savings and efficiency improvements across all facets of business, driven by its second five-year (fiscal 2017-2021) $10-billion productivity program.

The second five-year restructuring plan targets cutting costs in areas, including supply chain and cost of goods sold (COGS), marketing and digitization, and promotional spend effectiveness. This plan comprises $7 billion in COGS savings ($4.5 billion from raw and packaging materials, $1.5 billion in manufacturing savings and $1 billion from transportation/warehousing/other); $2 billion of marketing cost reductions; $1.5 billion of trade spending savings (10% efficiency); and $1-$2 billion of additional overhead reductions. This brings the total potential savings to $12-$13 billion. However, P&G adjusted the level down to up to $10 billion to take into account the uncertainty associated with operations, especially when projecting out several years.

Notably, the company’s core currency-neutral gross and operating margins reflected significant gains from productivity savings and pricing in first-quarter fiscal 2021. Core gross margin (on a currency-neutral basis) expanded 170 basis points (bps), owing to benefits from gross productivity savings, higher pricing, fixed cost leverage and commodity cost declines. Core currency-neutral operating margin expanded 350 bps in the quarter, including 230 bps of total productivity cost savings.

Driven by the robust fiscal first-quarter results, Procter & Gamble raised its outlook for fiscal 2021. The company now anticipates all-in sales growth of 3-4% compared with the earlier mentioned 1-3% increase. It now predicts organic sales growth of 4-5% versus a 2-4% rise mentioned earlier. Core earnings per share for fiscal 2021 are now projected to grow 5-8% compared with a 3-7% increase mentioned earlier.

Moreover, the Zacks Consensus Estimate for Procter & Gamble’s fiscal 2021 sales and earnings indicates a rise of 4.6% and 8.6%, respectively, from the year-ago reported numbers. The company delivered a positive earnings surprise of 9.2%, on average, in the trailing four quarters.

Conclusion

We believe the Zacks Rank #2 (Buy) company’s growth initiatives and strong demand for its products position it well for continued growth in fiscal 2021. This is further supported by a Growth Score of B and an expected long-term earnings growth rate of 7.6%.

Key Consumer Staples Stocks to Watch

Helen of Troy Limited (HELE - Free Report) has an expected long-term earnings growth rate of 9.4%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Coca-Cola European Partners PLC’s (CCEP - Free Report) Zacks Consensus Estimate for 2021 earnings has gone up by a penny in the past 60 days. It currently carries a Zacks Rank #2.

Sysco Corporation (SYY - Free Report) , also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 11%.

These Stocks Are Poised to Soar Past the Pandemic

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Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

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