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Factors Setting the Tone for Procter & Gamble (PG) Q4 Earnings

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The Procter & Gamble Company (PG - Free Report) is set to report fourth-quarter fiscal 2018 results on Jul 31, before the opening bell. In the last reported quarter, the company delivered positive earnings surprise of 2.04%.

A glimpse of the company’s earnings performance in the trailing four quarters shows that it has outpaced estimates by an average positive surprise of 4.1%. Additionally, the company’s surprise history reveals that it has outpaced earnings estimates in the last 12 quarters while topping sales estimates in the trailing four quarters.

The Zacks Consensus Estimate for the second quarter is pegged at 90 cents per share, reflecting year-over-year growth of 5.9%. However, consensus estimates has been trending down in the last 30 days. Analysts polled by Zacks anticipate total revenues of $16.55 billion, which reflects growth of 3% year over year.

Given the robust surprise trend, the stock has gained 8.9% in the last three months, outperforming the industry’s increase of 4.9%.

How Things are Shaping Up for This Announcement

Despite a robust surprise trend, we note that Procter & Gamble’s top-line growth remains muted (up only 3% in the first nine months of fiscal 2018) given multiple headwinds, including slow category growth, heightened competitive environment and retailer inventory destocking.

Global category growth was approximately 2.5% during the third quarter (in line with second-quarter). While developing market growth was around mid-single digit percentage, developed market growth was roughly low-single digit percentage. Although management indicated that seven out of 10 global categories are now growing or holding volume share, we remain concerned about persistent pricing weakness across P&G’s business as well as the above-mentioned top-line headwinds.

Importantly, fiscal third-quarter organic sales growth was entirely volume driven and pricing remained negative for P&G for the second consecutive quarter. Management indicated that U.S. Gillette pricing interventions reduced organic sales by 30 bps.

Furthermore, softness across Grooming as well as Baby, Feminine and Family Care segments is likely to impact results in the upcoming quarter. Sales for the grooming segment declined 3% in fiscal 2017 and 1% in the first nine months of fiscal 2018. Aggressive competitive activity, changes in grooming fashions and habits, and increased online competitors in some markets like the United States are hurting the performance. In fact, in the first nine months of fiscal 2018, organic sales in the Grooming segment declined 4%. Global market share of the segment decreased 0.6% in the period.

Meanwhile, Baby, Feminine and Family Care segment that contributes 27% to the total sales has also been performing poorly. The segment registered a decline of 9% in its top line in fiscal 2016 and 1% in fiscal 2017. In the first nine months of fiscal 2018 too, sales declined 8% from the year-ago period due to lower pricing and tepid volume. Global market share of the segment decreased 0.2%.

Meanwhile, the company is benefiting from higher demand for skincare products, along with fabric and home care products. Further, management remains focused on product improvement, packaging and marketing initiatives, and productivity cost-savings plan.

The company’s productivity and cost-saving plans have helped deliver robust earnings despite soft sales. Cost savings have consistently provided 200-300 bps of year-over-year margin benefit each quarter since fiscal 2012.

Additionally, the company’s focus on improving product portfolio through strategic initiatives, which enables it to concentrate on its fast-growing businesses, is aiding bottom line. As part of this, the company adheres to a systematic acquisition and divestiture plan to streamline portfolio, which is evident from the recent agreement to buy  consumer-health business of Germany-based Merck KGaA, which will replace P&G’s joint venture with Teva Pharmaceutical Industries — PGT Healthcare joint venture.

Given the mixed discussion above, we would prefer to wait and see what’s in store for this consumer goods company in the quarter to-be reported.

What the Zacks Model Unveils

Our proven model does not conclusively show that Procter & Gamble is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Procter & Gamble’s Earnings ESP of -0.17% and Zacks Rank #4 (Sell) make surprise prediction impossible.

Stocks to Consider

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to deliver an earnings beat:

The Boston Beer Company, Inc. (SAM - Free Report) has an Earnings ESP of +13.00% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Monster Beverage Corporation (MNST - Free Report) has an Earnings ESP of +0.31% and a Zacks Rank #3.

Dean Foods Company (DF - Free Report) has an Earnings ESP of +10.35% and a Zacks Rank #3.

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