A month has gone by since the last earnings report for Procter & Gamble (PG - Free Report) . Shares have added about 2.9% 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 the most recent earnings report in order to get a better handle on the important drivers.
Procter & Gamble’s Q3 Earnings & Sales Beat Estimates
Procter & Gamble Company, popularly known as P&G, reported third-quarter fiscal 2019 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Notably, this marked the company’s 16th straight earnings beat. Both earnings and sales also improved on a year-over-year basis.
Procter & Gamble’s core earnings came in at $1.06 per share, which improved 6% year over year and also outpaced the Zacks Consensus Estimate of $1.04. Meanwhile, currency-neutral core earnings per share (EPS) increased 15%.
Sales in Detail
Procter & Gamble reported net sales of $16,462 million, which outshined the Zacks Consensus Estimate of $16,407.6 million. The top line also rose 1% year over year. However, the metric was hurt by currency fluctuations to the tune of about 5%.
Organically (excluding impacts of acquisitions, divestitures and foreign exchange), revenues grew 5% driven by a 2% rise in shipment volumes. Further, organic sales benefited 2% from pricing and 1% from favorable mix. Notably, all of the company’s business segments, except Grooming, reported organic sales growth.
Also, the Beauty, and Fabric & Home Care segments registered organic sales growth of 9% and 7%, respectively. Organic sales improved 5% for the Health Care division and 2% for the Baby, Feminine and Family Care segment. Conversely, organic sales for the Grooming segment dipped 1%.
Net sales at the Beauty, Health Care, and Fabric & Home Care segments grew 4%, 9% and 2%, respectively. However, the same declined 8% at Grooming and 2% at Baby, Feminine & Family Care.
In the reported quarter, core gross margin remained flat year over year at 49.2%, including nearly 60 basis points (bps) of adverse impact from foreign currency. On a currency-neutral basis, core gross margin expanded 60 bps backed by gains from productivity savings and pricing. This uptick was partly offset by higher commodity costs, unfavorable product mix, innovation reinvestments and other impacts.
Core selling, general and administrative expenses (SG&A), as a percentage of sales, grew 70 bps to 28.6%. Also, currency-neutral core SG&A costs rose 30 bps as higher sales and savings from expenses were more than offset by marketing reinvestments and inflation.
While core operating margin contracted 60 bps to 19.9%, currency-neutral core operating profit margin expanded 40 bps. Currency headwinds dented core operating margin by 100 bps.
Procter & Gamble ended the reported quarter with cash and cash equivalents of $2,738 million, long-term debt of $21,359 million and total shareholders’ equity of $55,552 million.
Cash flow from operating activities amounted to $11,091 million for the first nine months of fiscal 2019. Operating cash flow for the fiscal third quarter was $3.5 billion and free cash flow productivity was 100%.
Furthermore, the company returned nearly $3.1 billion to its shareholders through dividend payments worth $1.9 billion and share buybacks of roughly $1.3 billion.
Notably, the company raised its fiscal 2019 adjusted free cash flow productivity view to at least 100% from 90%. During the fiscal year, it expects to return cash to its shareholders through dividends worth more than $7 billion and share repurchases worth up to $5 billion.
Fiscal 2019 Guidance
Following the solid quarterly performance, Procter & Gamble raised its sales forecast for fiscal 2019 driven by robust organic sales. Further, the company reaffirmed bottom-line view. It now projects all-in sales growth of flat to up 1%, including an adverse impact of 3-4 percentage points from foreign currency and a modest gain from acquisitions and divestitures. Earlier, the company expected all-in sales to be down 1% to up 1% in fiscal 2019. Organic sales for the fiscal year are now estimated to increase 4% compared with 2-4% projected earlier.
Moreover, the company continues to anticipate core EPS growth of 3-8% for 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 likely to grow 17-24%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
At this time, P&G has a nice Growth Score of B, a grade with the same score on the momentum front. 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.
P&G has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.