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Procter & Gamble (PG) Beats on Q2 Earnings, Down on Sales Miss

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The Procter & Gamble Company (PG - Free Report) , popularly known as P&G, reported second-quarter fiscal 2020 results, wherein earnings per share surpassed the Zacks Consensus Estimate. However, sales missed the consensus mark. Nonetheless, earnings and sales improved on a year-over-year basis. Moreover, the company raised its guidance for fiscal 2020.

Procter & Gamble’s core earnings of $1.42 per share improved 14% year over year and outpaced the Zacks Consensus Estimate of $1.37. Meanwhile, currency-neutral core earnings per share (EPS) grew 15%.

The company reported net sales of $18,240 million, improving 4.6% year over year. However, sales missed the Zacks Consensus Estimate of $18,339 million. Currency fluctuations hurt the top line by one percentage point.

Despite strong bottom-line results, investors were disappointed by lower-than-expected sales. Consequently, the stock dipped 2% during the pre-market trading session. We note that shares of the Zacks Rank #2 (Buy) company have grown 34% in the past year, outperforming the industry’s 21.8% rally.
 



Sales in Detail

On an organic basis (excluding the impact of acquisitions, divestitures and foreign exchange), revenues grew 5% based on 3% rise in organic shipment volume. Further, organic sales benefited 1% each from increased pricing and favorable mix. The company mix benefited from strong organic sales growth in the Health Care segment as well as Skin and Personal Care categories, which have higher than company average selling prices.

Moreover, all of the company’s business segments reported organic sales growth. Organic sales improved 8% for the Beauty segment, 4% for Grooming, 7% for Health Care, 5% for Fabric & Home Care, and 1% for the Baby, Feminine and Family Care segment.

Net sales at Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine and Family Care segments grew 7%, 2%, 14%, 4% and 1%, respectively.

Margins

In the reported quarter, core gross margin increased 200 basis points (bps) year over year to 51.6%, including nearly 10 bps of adverse impact of foreign currency. On a currency-neutral basis, core gross margin expanded 210 bps, backed by gains from productivity savings, higher pricing, commodity cost declines and other benefits. This uptick was partly offset by unfavorable product mix.

Core and currency-neutral selling, general and administrative expenses (SG&A), as a percentage of sales, increased 20 bps to 26.9%. The increase was driven by higher marketing investments, inflation, digital investments, incentive compensation costs and other impacts. However, these were partly negated by savings from overhead and marketing expenses, and sales leverage benefit.

Moreover, core and currency-neutral operating margin expanded 190 bps to 24.7%, driven by 220 bps of total productivity cost savings.

Financials

Procter & Gamble ended the reported quarter with cash and cash equivalents of $6,279 million, long-term debt of $18,985 million, and total shareholders’ equity of $45,908 million.

Cash flow from operating activities amounted to $8,533 million for the first half of fiscal 2020, with operating cash flow of $4.4 billion in the fiscal second quarter. Moreover, adjusted free cash flow productivity was 100%.

Furthermore, the company returned $5.4 billion of cash to its shareholders in the fiscal second quarter. This included dividend payments worth $1.9 billion and share buybacks of $3.5 billion.

For fiscal 2020, the company increased its view for adjusted free cash flow productivity to 100% from 95% stated earlier. It anticipates paying out more than $7.5 billion in dividends and repurchasing $7-$8 billion of common shares in fiscal 2020. Earlier, the company had anticipated repurchasing shares worth $6-$8 billion.

Fiscal 2020 Guidance

Backed by strong organic sales growth, core earnings and returns to shareholders in the fiscal second quarter, Procter & Gamble raised its view for fiscal 2020. The company now projects all-in and organic sales growth of 4-5% compared with 3-5% mentioned earlier. The guidance includes a modest impact of adverse foreign currency, which is likely to be mostly offset by slight gain from acquisitions and divestitures.

Moreover, the company now projects core EPS growth of 8-11% for fiscal 2020 compared with 5-10% mentioned earlier. In fiscal 2019, it reported core earnings of $4.52 per share.

3 Other Top-Ranked Stocks to Watch

Colgate-Palmolive Company (CL - Free Report) has an expected long-term earnings growth rate of 4.3%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Coca-Cola Company (KO - Free Report) presently has an expected long-term earnings growth rate of 6.6% and a Zacks Rank #2.

Monster Beverage Corporation (MNST - Free Report) has an expected long-term earnings growth rate of 14.3%. Currently, it carries a Zacks Rank #2.

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