A month has gone by since the last earnings report for Procter & Gamble (PG Quick QuotePG - Free Report) . Shares have lost about 1.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is P&G due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Procter & Gamble Q2 Earnings & Sales Beat, FY21 View Up

Procter & Gamble posted better-than-expected second-quarter fiscal 2021 results, wherein both earnings and sales improved year over year. Results have been driven by robust top-line growth as well as improved margins. Encouragingly, management has raised its outlook for fiscal 2021.

The company’s earnings of $1.64 per share rose 15% year over year and outpaced the Zacks Consensus Estimate of $1.51 on the back of sturdy sales growth and an improved operating margin. Meanwhile, currency-neutral core earnings per share (EPS) increased 18%.

The company reported net sales of $19,745 million, increasing 8% year over year and surpassing the Zacks Consensus Estimate of $19,149 million. Sales growth was attributed to strength across all segments coupled with robust shipments, pricing and mix.

Net sales for the Beauty; Health Care; Grooming; Fabric & Home Care; and Baby, Feminine and Family Care segments rose 6%, 5%, 9%, 12% and 6%, respectively.

On an organic basis (excluding the impact of acquisitions, divestitures and foreign exchange), revenues improved 8% based on a 5% rise in organic shipment volumes as well as one and two percentage point gains in pricing and mix, respectively. The company reported a positive mix owing to uneven growth of premium home care products and appliances along with strength in the North American business mainly due to an increase in the pandemic-led consumption and inventory.

Moreover, all of the company’s business segments reported growth in organic sales. Organic sales moved up 5% in Beauty, 6% in Grooming, 9% in Health Care, 12% in Fabric & Home Care and 6% in Baby, Feminine and Family Care.

Margins

In the reported quarter, gross margin expanded 170 basis points (bps) year over year to 53.1%, including 50 bps of adverse impacts of foreign currency. On a currency-neutral basis, gross margin expanded 200 bps owing to benefits from gross productivity savings, higher pricing and commodity cost declines. This was partly offset by unfavorable product mix and other costs.

Selling, general and administrative expenses (SG&A), as a percentage of sales, declined 100 bps from the year-ago quarter core SG&A expenses, to 25.9%. Adverse currency negatively impacted SG&A expenses by 10 bps. The metric dropped 110 bps on a currency-neutral basis. This can be attributable to gains from robust sales leverage, and savings from overhead and marketing costs, offset by marketing reinvestments, inflation and other expenses.

Moreover, the operating margin expanded 250 bps from the year-ago quarter’s core operating margin. Unfavorable currency hurt operating margin by 60 bps. On a currency-neutral basis, the metric improved 310 bps, driven by 280 bps of total productivity cost savings.

Financials

Procter & Gamble ended the reported quarter with cash and cash equivalents of $11,941 million, long-term debt of $22,514 million and total shareholders’ equity of $48,540 million.

Cash flow from operating activities amounted to $5,380 million for second-quarter fiscal 2021. Moreover, adjusted free cash flow productivity was 113%.

Furthermore, the company returned $5 billion of cash to its shareholders in the fiscal second quarter. This included $2 billion of dividend payouts and $3 billion of share buybacks.

Fiscal 2021 Guidance

Driven by the strong fiscal second-quarter results, management raised its guidance for fiscal 2021. The company now anticipates all-in sales growth of 5-6% compared with the previously mentioned 3-4% increase. It now predicts organic sales growth of 5-6% versus a 4-5% rise mentioned earlier. Currency movements are likely to remain neutral to sales growth in fiscal 2021.

Further, earnings per share on a reported basis are now expected to increase 8-10% compared with 4-9% growth stated previously. The revised GAAP earnings per share guidance takes into account non-core charges of 16 cents per share due to the early debt retirement project adopted this month.

Core earnings per share for fiscal 2021 are now projected to grow 8-10% compared with a 5-8% increase mentioned earlier. This view takes into account an after-tax headwind of $100 million due to currency woes, $100 million from higher freight costs and $150 million from the combined impact of rising interest expenses and reduced interest income.

Adjusted free cash flow productivity is estimated to be 95-100% for fiscal 2021. In addition to this, the company anticipates returning $18 billion of cash to shareholders in fiscal 2021, including dividend payments of $8 billion. It raised its share repurchase guidance to $10 million for fiscal 2021 compared with $7-$9 billion stated earlier.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, P&G has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, 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 B. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.