The Procter & Gamble Company (PG - Free Report) , popularly known as P&G, is gaining momentum on the back of robust surprise trend due to ongoing initiatives to improve productivity. Moreover, the company remains focused on product improvement, as well as packaging and marketing initiatives, which drive top and bottom lines. Also, it is on track with its cost-saving plans.
These enabled Procter & Gamble to end fiscal 2019 on a strong note, with top and bottom line beat in the fourth quarter. Markedly, better-than-expected results prompted management to provide upbeat guidance for fiscal 2020.
For fiscal 2020, the company projects both all-in and organic sales growth of 3-4%. Moreover, it anticipates core EPS growth of 4-9% for fiscal 2020. It reported EPS of $4.52 in fiscal 2019. P&G expects commodities, foreign exchange, transportation and tariffs to modestly aid earnings growth in fiscal 2020.
Backed by these positives, shares of this Cincinnati, OH-based company have rallied 49% in the past one year outperforming the industry’s growth of around 29.5%.
Factors Driving Procter & Gamble’s Performance
P&G 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, underscore its productivity efforts. With cost savings and efficiency improvements across all facets of business, it has crossed the mid-point of the second five-year (fiscal 2017-2021) cost savings target of $10 billion.
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.
Additionally, P&G focuses on improving its product portfolio through initiatives, which enable it to concentrate on its fast-growing businesses. For this, the company relies on its strategy of acquiring complementary businesses. It also follows a systematic divestiture plan to streamline its portfolio. Notably, it has acquired a private company — This is L. — that produces period products with natural ingredients. This will aid in expanding its naturals product range, which is a key focus area for most day-to-day consumer product companies at present.
Some other recent acquisitions include the beauty brand — First Aid Beauty, the consumer health business of Germany-based Merck KGaA and Walker & Company Brands, all in 2018. These buyouts should bolster the company’s product portfolio in various categories. Simultaneously, it divested several assets over the years as part of the portfolio-reshaping plan.
However, adverse foreign currency rates are hurting the company’s top and bottom lines. In fourth-quarter fiscal 2019, currency fluctuations hurt net sales to the tune of about 4% and core operating margin by 80 basis points. Moreover, its all-in sales for fiscal 2020 are likely to witness negative impacts from adverse currency movements.
Nevertheless, we expect this Zacks Rank #2 (Buy) stock to offset these minor hurdles and continue to sustain momentum.
Other Key Picks
The Estee Lauder Companies Inc. (EL - Free Report) has a long-term earnings growth rate of 13% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Target Corporation (TGT - Free Report) has a long-term earnings growth rate of 7.1% and a Zacks Rank #2.
Colgate-Palmolive Company (CL - Free Report) , also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 5.5%.
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