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Procter & Gamble (PG) Q3 Earnings Beat Estimates, Sales Up

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The Procter & Gamble Company (PG - Free Report) , popularly known as P&G, reported third-quarter fiscal 2020 results, with earnings per share (EPS) surpassing the Zacks Consensus Estimate. Also, sales were in line with the consensus mark. Moreover, earnings and sales increased on a year-over-year basis.

Procter & Gamble’s core earnings of $1.17 per share rose 10% year over year and outpaced the Zacks Consensus Estimate of $1.12. Meanwhile, currency-neutral core earnings per share (EPS) increased 15%.

The company reported net sales of $17,214 million, up 5% year over yearand in line with the Zacks Consensus Estimate. Currency fluctuations hurt the top line by two percentage point.

We note that, shares of the Zacks Rank #3 (Hold) company have returned 14.6% in the past year compared with the industry’s 4% growth.



Sales in Detail

On an organic basis (excluding the impact of acquisitions, divestitures and foreign exchange), revenues moved up 6% based on 6% rise in organic shipment volume. Further, sales inched up1% owing to higher pricing. The company mix to net sales growthwas flat year over year.

Moreover, all of the company’s business segments except Grooming reported growth in organic sales. Organic sales moved up1% in the Beauty segment, 9% in Health Care, and 10% in Fabric & Home Care as well as 7% in the Baby, Feminine and Family Care segment. However, the metric declined 1% in the Grooming division.

Net sales in the Health Care, Fabric & Home Care, and Baby, Feminine and Family Care segments rose 7%, 8% and 6%, respectively. However, net sales in the Beauty and Grooming segments declined 1% and 3%, respectively.

Margins

In the reported quarter, core gross margin increased 120 basis points (bps) year over year to 50.4%, including 10 bps of adverse impact of foreign currency. On a currency-neutral basis, core gross margin expanded 130 bps owing to benefits from gross productivity savings, higher pricing and commodity cost declines. The uptick was partly offset by unfavorable product mix and other headwinds.

Core selling, general and administrative expenses (SG&A), as a percentage of sales, increased 20 bps to 29.5%. The metric declined 50 bps on a currency-neutral basis. The decline was caused by advantage from sales leverage along with savings from overhead and marketing expenses. However, higher marketing investments, inflation and other impacts were deterrents.

Moreover, core operating margin expanded 100 bps. On a currency-neutral basis, the metric improved 180 bps, driven by 240 bps of total productivity cost savings.

Financials

Procter & Gamble ended the reported quarter with cash and cash equivalents of $15,393 million, long-term debt of $23,310 million and total shareholders’ equity of $45,941 million.

Cash flow from operating activities amounted to $12,597 million for the nine months ended Mar 31, with operating cash flow of $4.1 billion in fiscal third quarter. Moreover, free cash flow productivity was 113%.

Furthermore, the company returned $2.8 billion of cash to its shareholders in fiscal third quarter. This included dividend payouts worth $1.9 billion and share buybacks of $900 million.

For fiscal 2020, the company reaffirmed its view for adjusted free cash flow productivity at 100%. It expects to pay out more than $7.5 billion dividends and repurchase $7-$8 billion of common shares in fiscal 2020. Recently, management announced a 6% increase in the quarterly dividend, marking the company’s 64th consecutive year of dividend increase.

Fiscal 2020 Guidance

Due to stronger headwind from foreign exchange rates, Procter & Gamble has revised its all-in sales view downward for fiscal 2020. The company now projects all-in sales to grow 3-4% compared with 4-5% mentioned earlier. The guidance includes a two percentage point of adverse foreign currency, which is likely to be offset by modest gain from acquisitions and divestitures.

The company reaffirmed its organic sales guidance of a 4-5% growth in the fiscal. Moreover, the company reiterated core EPS growth of 8-11% year over year for fiscal 2020. In fiscal 2019, the company reported core earnings of $4.52 per share.

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