Procter & Gamble (PG) Tops Estimates on Both Top and Bottom Lines
Packaged goods giant Procter & Gamble (PG: Charts, News) rallied strongly last week, after the company reported strong second quarter earnings that topped analyst expectations on both the top and bottom lines. P&G earned $1.22 per share on revenue of $22.2 billion.
Analysts had expected the company to earn $1.11 per share on revenue of $21.91 billion. Daily Chart
Although consumer staples such as P&G are usually considered safe haven stocks during economic downturns, the prior recession pushed cost-conscious consumers towards generic, off-brand products. This chipped away at P&G's core source of revenue over the past two years. Yet the company's quarterly earnings suggest that customers are buying brand name consumer staples again, thanks to a rebounding economy - and that was great news for P&G, which creates well-known consumer staples such as Head & Shoulders shampoo, Charmin toilet paper and Bounty paper towels. P&G also attributed its stronger profit to reduced costs during the quarter, a result of extended restructuring efforts. Gross margin increased 80 basis points to 50.9%, due to better cost control in all business segments except for health care. P&G increased its investments in its health care supply chain and boosted marketing expenses in emerging markets. Organic sales growth rose 3%, which was in line with its own target of 2% to 4% sales growth for fiscal 2013. Analysts pointed out that P&G's sales growth was not evenly distributed between volume and price increases. Sales in its personal care segment rose due to higher prices, but overall sales volume remained flat. P&G is aiming to increase sales volume while maintaining higher prices, a difficult task recently achieved by European rival Unilever. In its most recent quarter, Unilever's personal care segment was able to raise prices by 2.9% while posting 7.2% growth in sales volume. Looking forward, P&G sees strong and stable growth in 2013. The company raised its EPS and organic growth guidance for fiscal 2013. It also added $1 billion to its share repurchase plan, stating that it intends to buy back $5 to $6 billion in stock. Hedge fund manager William Ackman, who recently made headlines shorting Herbalife (HLF
), spearheaded an effort to replace CEO Robert McDonald last summer, after the company lowered its guidance in April. Ackman's Pershing Square owns approximately 1% of Procter & Gamble. However, the company's strong quarter has apparently bought McDonald some goodwill and extra time. P&G states that its next target is to grow sales volume in the second half of fiscal 2013, after costs have stabilized. P&G stock trades at 16.9 times forward earnings with a 5-year PEG ratio of 2.4. The company currently has $6.64 billion in cash, but $33.43 billion in debt - giving it a high debt/equity ratio of 49.65. The stock pays a quarterly dividend of 56 cents per share, a 3.07% yield at current prices. Other News About PG Procter & Gamble Results Help Stem Investor Concerns
Procter & Gamble posts a bright second quarter. Breaking Down Procter & Gamble Earnings: The 2013 Turnaround?
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Published on Jan 29, 2013
By Leo Sun