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Branded consumer packaged goods maker Procter & Gamble (PGFree Procter & Gamble Stock Report), a manufacturer of branded consumer packaged goods with operations in approximately 75 countries, recently reported stout fiscal second- quarter results (years end June 30th). Net sales were $22.2 billion, up 2% from a year earlier. Both Value Line and Wall Street analysts, on average, were looking for revenues of $21.9 billion. The organic top-line growth was 3% in the period, and unfavorable currency translation had a negative impact of 1%. More important, internal sales growth was broadbased, meaning all five segments reported an organic revenue gain of at least 2%. Management also noted that the company likely held or increased market share in businesses representing roughly half of December-quarter sales. GAAP share earnings came in at $1.39, but included restructuring charges totaling $0.05 and a one-time gain of $0.21 resulting from P&G's purchase of the balance of a joint venture in Iberia. Consequently, adjusted share net was $1.22, an increase of 12% from the $1.09 posted this time last year. This easily topped our share-earnings target of $1.11. The consensus estimate was also $1.11.

The majority of businesses under the Beauty umbrella reported sales gains, thanks to a combination of innovation and higher pricing. Overall, volume was flat, pricing drove revenues 3% higher, and unfavorable foreign exchange reduced sales by 1%. However, skin care and salon (professional) revenues were down owing to competitive activity and market softness, which is worth keeping an eye on.

The Grooming segment had the toughest go of it in the December period, as volume slipped 2% and currency translation had a negative impact of 3%. Still, pricing was up 2%, and the unit managed 2% organic revenue growth. Blades and razors sales increased, thanks to strengthened marketing, growth in the U.S., and higher pricing. 

In Health Care, internal top-line growth came in at 4%, aided by a 3% volume advance and 2% worth of pricing gains. Foreign exchange had an unfavorable impact of 2%, and the changing mix hurt sales to the tune of 1%. Oral care revenues were up nicely, on the back of innovation, market expansion, and higher pricing. Feminine care sales also rose solidly, thanks to volume initiatives put in place in Latin America and the Asia/Pacific region. 

Fabric Care & Home Care growth was strong, driven by new product launches, positive pricing trends, and favorable product mix at the former, and volume gains and geographic expansion at the latter. Battery sales were notably higher, due to a combination of price increases and pantry loading from Hurricane Sandy. All told, volume was up 2% and pricing was 1% better, leading to organic sales growth of 3%. 

Lastly, the Baby Care and Family Care group posted the strongest internal sales gain of 5%, driven by healthy volume growth and timely price hikes. More specifically, Baby Care revenues were driven higher by market growth and innovation, while Family Care sales were fueled by the strong performances of brands like Charmin and Bounty.

From a profitability standpoint, adjusted gross margins increased by 110 basis points, owing to higher product prices and manufacturing cost savings. SG&A expenses, as a percentage of sales, were unchanged, as productivity savings were offset by increased employee benefit costs. Still, adjusted operating profit surged ahead by 7%. 

Management revised its earnings guidance for fiscal 2013. P&G now expects adjusted share net to fall between $3.97 and $4.07, up 3%-6% compared to the $3.85 reported last year. The company also boosted its sales guidance, and now looks for organic revenues to climb 3%-4% (up from 2%-4%). Lastly, management said that investors should expect P&G to retire between $5 billion and $6 billion worth of common stock in fiscal 2013, compared to previous guidance of $4 billion-$6 billion.

Investors reacted very favorably to the news, driving the price of PG shares more than 3% higher in the hours following the release. The stock has performed very well since the onset of calendar 2013, and is currently trading at a 52-week high.

We have boosted our fiscal 2013 estimates to more closely resemble management's new guidance ranges. We have added $1.4 billion to our full-year sales call, which now stands at $85.6 billion. We also padded our share-net target by $0.09, increasing it to $4.04. We have not changed our stance regarding PG stock, however. Indeed, we still think there is a lot to like here, including the blue chip's excellent stability, high dividend yield, and worthwhile and well-defined 3- to 5-year capital appreciation potential. In fact, we think PG shares could anchor just about any retail portfolio, and believe it remains an excellent choice for large-cap institutional funds and conservatively oriented individual investors.

About The CompanyThe 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, Folgers, 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 (WMTFree 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.