The Low Growth, No Growth, Story at P&G

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Procter & Gamble (NYSE: PG) is going to try to deflect activist efforts with its earnings report, although the growth here still seems anemic. The consumer products giant reported that core earnings per share rose by 5% to $1.06 for its quarter, and diluted net earnings from continuing operations fell by 5% to $0.96 per share, after noncore charges of $0.10. P&G said that organic sales grew by about 2% and net sales were down 4% to $20.7 billion after a negative impact of 6% from foreign exchange.

Thomson Reuters had estimates of $0.96 EPS and $20.78 billion in revenue. The company claimed that four of its five business segments increasing compared with the prior year. P&G also claimed that these results were at the high end of expectations on the top line and ahead of plan on operating profit, earnings per share and cash.

Core gross margin increased 80 basis points due to "the impact of higher pricing and manufacturing cost savings, partially offset by unfavorable geographic and product mix. Reported gross margin, including restructuring, increased 30 basis points." Core SG&A expenses as a percentage of net sales decreased 10 basis points. Operating cash flow was $2.8 billion for the quarter, it repurchased $2.6 billion worth of shares during the quarter, and it returned $1.6 billion of cash to shareholders as dividends.

P&G is maintaining its organic sales growth guidance in the range of 2% to 4% for the fiscal year, but foreign exchange is expected to reduce sales growth by 2% to 3% for "all-in net sales growth" of in-line to up 1% versus the prior year. The company also maintained its core earnings per share guidance in the range of $3.80 to $4.00, which is down 1% to up 4%. Thomson Reuters is calling for estimates of $3.91 EPS and 0.8% sales growth to $84.37 billion.

For the current quarter, organic sales growth is expected to be 1% to 3%. Foreign exchange is expected to reduce sales by 2%, so its all-in sales guidance is -1% to up 1%. The company expects December quarter core EPS in the range of $1.07 to $1.13, down 2% to up 4%. Thomson Reuters has estimates of $1.10 EPS and is expecting a -1.6% revenue change to $21.77 billion.

Chairman, President and Chief Executive Officer Bob McDonald said:

We are continuing to focus on executing our growth and productivity strategy - maintaining momentum in developing markets, strengthening our core developed market business, building a strong innovation pipeline, and aggressively driving cost savings and productivity improvements. We're confident that this strategy will enable P&G to generate superior levels of shareholder return in both the short- and long-term.

No word of activist investors here.

P&G shares are up fractionally in premarket trading to $68.45, as there is just very little excitement here to cheer about with such low growth numbers. The 52-week trading range is $59.07 to $69.97.

With a $187 billion market cap, investors may wonder if some of these units and brands might be able to grow faster if they are out on their own.

JON C. OGG


Filed under: 24/7 Wall St. Wire, Consumer Goods, Consumer Product, Earnings Tagged: PG
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