Branded consumer packaged goods manufacturer The Procter & Gamble Company (PG – Free Procter & Gamble Stock Report) has reported fiscal second-quarter results (year ends June 30th). The top line rose less than 1%, to $22.3 billion, which was about $100 million below both our estimate and Wall Street's consensus. Overall, handsome volume growth was offset by negative currency translation, and better pricing was mitigated by unfavorable geographic and product mixes. Adjusted share earnings, which exclude restructuring charges, came in at $1.21, a penny lower than the year-earlier figure and in line with most estimates. Gross margins suffered, as the aforementioned unfavorable geographic and product mixes and higher commodity costs were only partially offset by manufacturing savings, better volume leverage, and stronger pricing. The operating margin was down, too, as marketing and productivity savings made up only some of the difference. Finally, P&G bought back $1.5 billion worth of stock in the period, which helped boost adjusted share earnings.
Four of the company's five segments reported organic sales growth in the period. Indeed, the Beauty group was the only laggard, posting organic sales that were unchanged and a reported sales decline of 2%. Management said that market growth and innovation was offset by unfavorable geographic and product mixes and a decrease in skin care sales.
Grooming segment results were slightly better, as the reported top line was flat and organic sales rose 3%. Higher pricing and the benefits of new product introductions on the blades & razors and appliances fronts were offset by market contraction in developed regions.
Health care organic sales were strong, rising 5% in the fiscal second quarter. Moreover, reported sales were up 4%. Increases in oral care and personal health care revenues were slightly offset by the continuing impacts from last fiscal year's product recalls on the pet care front.
The Fabric Care & Home Care business also performed well in the period, as organic sales grew 4% and reported sales expanded 1%. Ongoing innovation and market expansion in developing regions boosted results, while personal power (battery) sales slipped due to the lack of the additional shipments last year that were linked to Hurricane Sandy.
Finally, Baby, Feminine & Family Care organic sales rose 3%; reported sales inched ahead 1%. Once again, results got a nice boost from recent product innovations and penetration into emerging markets.
Shares of PG were up nicely in the hours following the release of fiscal second-quarter results. The top and bottom lines were mostly in line with expectations and there were no major changes to the company's guidance, meaning investors were likely fearing the worst.
We have not made any material changes to our fiscal 2014 estimates, and still look for P&G to post sales of $86.0 billion and report share earnings of $4.30. PG stock remains a worthwhile choice for conservative investors, thanks its stability and above-average dividend yield. Long-term capital appreciation is also decent and, importantly, well defined.
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, Gillette, MACH3, Braun, and Duracell. Acquired Gillette in October, 2005, and divested Folgers in June, 2009. U.S. sales accounted to 39% of total revenues in fiscal 2013, while Wal-Mart Stores (WMT – Free Wal-Mart Stock Report) accounted for 14%.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.