The Procter & Gamble Company (PG – Free Procter & Gamble Stock Report), the world's largest manufacturer of branded consumer packaged goods, recently reported fiscal third-quarter results. (Fiscal 2012 ends June 30th.) Sales were $20.2 billion, up 2% from a year earlier. The top-line figure did, however, fall about $150 million short of our target. GAAP share earnings from continuing operations, which included $0.13 worth of one-time restructuring charges related to recently announced productivity-improvement and cost-savings programs, were $0.81. The adjusted figure of $0.94 was in line with both the year-earlier figure and our estimate. (P&G is in the process of selling its Snacks division, which houses the Pringles brand. The business is now classified as a discontinued operation, so all year-over-year comparisons exclude the unit's results.)
Beauty sales were up 1%, to $4.8 billion, as decent volume growth and price hikes were offset by unfavorable geographic and product category mixes. (There was disproportionate growth in developing regions and low-margined product lines.) The group's operating margins contracted slightly, owing mostly to higher input costs, but profits expanded 3%, to $523 million, due to a lower effective tax rate.
At Grooming, the top line merely held steady at $2.0 billion. Again, price hikes and marginal volume gains were offset by an unfavorable product mix. Currency translations also took a toll on the segment's revenues, to the tune of 2%. Earnings here dipped 4%, to $398 million, due to higher raw materials outlays.
Healthcare sales increased 2%, to $3.0 billion, though volume was flat compared to a year earlier. Indeed, pricing gains boosted the top line by 3%, while unfavorable currency translation eroded revenues by 1%. Notable, Personal Healthcare volume declined at a mid-single-digit clip, due to a weak cold and flu season in North America. Growth in Feminine Care helped pick up the slack, though. Despite the top-line advance, the bottom line slipped 4%, to $411 million, as gross margins contracted.
Fabric & Home Care, P&G's largest segment, reported March-quarter sales of $6.6 billion, a gain of 1%. Better pricing padded the top line by a whopping 7%, though volume declines, unfavorable product category and geographic mixes, and currency translation losses took their tolls. Operating margins narrowed considerably here, so profits dropped 9%, to $716 million.
Finally, Baby & Family Care posted a 5% top-line advance, to $4.2 billion. Volume growth and pricing gains were both solid. Earnings came in at $573 million, up 9% from the year-earlier tally, as operating margins expanded nicely.
Looking ahead, company-wide sales growth should be 1%-2% in the June quarter, with most of the gain coming via better pricing. Margins are set to contract, owing to the tough operating environment as well as higher commodities costs. Consequently, we expect adjusted share earnings to be $0.82, which would mirror the year-earlier tally. For the full fiscal year, the top line will likely rise about 4%. Share net is set to drop slightly, however, from $3.87 in fiscal 2011 to $3.85 in fiscal 2012. (Our new top- and bottom-line estimates have all been reduced.)
Investors reacted as expected in the minutes following the opening bell, sending the price of PG stock down a few percentage points.
The song remains the same as far as our recommendation is concerned – this blue chip is best suited for conservative, income-oriented investors with a very long-term horizon. The stock is essentially a barometer for global economic activity, and as conditions improve so should P&G's bottom line.
About The Company: The Procter & Gamble Company makes detergents, soaps, toiletries, foods, paper, & industrial products. Brands include: Always, Head & Shoulders, Olay, Pantene, Wella, Actonel, Dawn, Downy, Tide, Bounty, Charmin, Pampers, Iams, Pringles, Gillette, MACH3, Braun, and Duracell. Acquired Gillette in October, 2005, and divested Folgers in June, 2009. U.S. sales accounted for 37% of total revenues last fiscal year, while Wal-Mart Stores (WMT – Free Wal-Mart Stock Report) accounted for 15%.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.