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P&G (PG) Up 2.9% Since Last Earnings Report: Can It Continue?

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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 its most recent earnings report in order to get a better handle on the important drivers.

Procter & Gamble’s Q4 Earnings & Sales Beat Estimates

Procter & Gamble reported fourth-quarter fiscal 2019 results, wherein the top line and the bottom line surpassed the Zacks Consensus Estimate. This marked the company’s 17th straight earnings beat. Both earnings and sales also improved on a year-over-year basis. Moreover, it provided upbeat guidance for fiscal 2020.

Procter & Gamble’s core earnings of $1.10 per share improved 17% year over year and outpaced the Zacks Consensus Estimate of $1.06. Meanwhile, currency-neutral core earnings per share (EPS) increased 26%.

Sales in Detail

Procter & Gamble reported net sales of $17,094 million, which outshined the Zacks Consensus Estimate of $16,873 million. The top line also rose 3.6% year over year. However, the metric was hurt by currency fluctuations to the tune of about 4%.

Organically (excluding impacts of acquisitions, divestitures and foreign exchange), revenues grew 7% driven by a 3% rise in shipment volumes. Further, organic sales benefited 3% from pricing and 2% from favorable mix. Notably, all of the company’s business segments reported organic sales growth.

Health Care and Fabric & Home Care segments registered organic sales growth of 10% each. Moreover, organic sales improved 8% for the Beauty division, 5% for the Baby, Feminine and Family Care, and 4% for the Grooming segment.

Net sales at the Beauty, Health Care, and Fabric & Home Care segments grew 3%, 13% and 5%, respectively. Meanwhile, sales improved 1% at Baby, Feminine & Family Care, while it declined 3% at the Grooming division.

Margins

In the reported quarter, core gross margin increased 120 basis points (bps) year over year to 48.8%, including nearly 40 bps of adverse impact from foreign currency. On a currency-neutral basis, core gross margin expanded 160 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, declined 20 bps to 29.2%. Currency-neutral core SG&A costs decreased 50 bps driven by savings from operating expenses, gain from sales leverage and benefit from sale of real estate. This was partly negated by marketing reinvestments, inflation and capability investment mainly in sales and research and development.

Moreover, core operating margin expanded 130 bps to 19.6%, while currency-neutral core operating profit margin increased 210 bps. Currency headwinds dented core operating margin by 80 bps.

Financials

Procter & Gamble ended the reported quarter with cash and cash equivalents of $4,239 million, long-term debt of $20,395 million and total shareholders’ equity of $47,579 million.

Cash flow from operating activities amounted to $15,242 million for the fiscal 2019. Operating cash flow for the fiscal fourth quarter was $4.2 billion and free cash flow productivity was $3.3 billion.

Furthermore, the company returned nearly $12.5 billion to its shareholders through dividend payments worth $7.5 billion and share buybacks of roughly $5 billion on fiscal 2019.

For fiscal 2020, the company expects adjusted free cash flow productivity of 90%. It anticipates paying out more than $7.5 billion in dividends and repurchase $6-$8 billions of common shares in fiscal 2020.

Fiscal 2020 Guidance

After the robust results, Procter & Gamble outlined its view for fiscal 2020. The company projects all-in sales growth in the range of 3-4%, including an adverse impact from foreign currency and a modest gain from acquisitions and divestitures. Organic sales for the fiscal year are estimated to increase 3.

Moreover, the company projects core EPS growth of 4-9% for fiscal 2020 compared with fiscal 2019 core earnings of $4.52 per share. It expects commodities, foreign exchange, transportation and tariffs to modestly aid earnings growth in fiscal 2020. The Zacks Consensus Estimate for earnings is pegged at $4.74 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, P&G has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise P&G has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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