Procter & Gamble Earnings: As Expected and On Track

Proctor&Gamble

Shares of Procter & Gamble (NYSE:PG) wobbled between marginal gains and losses in pre-market trading on Friday after the consumer goods business reported slightly better-than-expected fiscal second-quarter results. Net sales were flat on the year at $22.3 billion (including a -3 percent currency impact), in line with analyst expectations. Net earnings per diluted share fell 15 percent on the year to $1.18 (thanks largely to an unfavorable comparison), while core earnings per share fell 1 percent to $1.21, beating the mean analyst estimate by a penny.

Chair, President, and CEO A.G. Lafley captured the mood when he stated in the earnings released that, “P&G’s second-quarter results came in as we expected,” and reiterated the company’s full-year guidance, giving investors nothing new to look forward to. “We’re on-track to deliver our objectives of 3-4 percent organic sales growth and 5-7 percent core EPS growth for the fiscal year. We expect strong earnings growth in the second half of the fiscal year driven by solid top-line growth, moderating headwinds from foreign exchange, and productivity savings that build throughout the year.”

All told, the news — as it so often is with Procter & Gamble — is good, but not great. The earnings contraction was still unsavory even though it was expected, and flat sales growth is hardly exciting. This slow-but-steady story has played out over the past few quarters, and its driven the stock nowhere but sideways over the past six months.

Investors will have to be content to sit on the stock, which, with a 3 percent dividend and a business as stable as anyone can ask for, is really nothing to complain about. Procter & Gamble has increased its dividend at least once per year since 1957 and is a staple in many, if not most, long-term portfolios.

Total organic sales and organic sales volume were both up 3 percent on the year in the second quarter. Growth was led by Procter & Gambles Health Care segment, which posted 6 percent organic volume growth and 5 percent organic sales growth, or 4 percent net sales growth. Procter & Gamble notes that the increase in Healthcare organic sales was due to increases in Oral Care and Personal Healthcare from innovation which were partially offset by a decrease in Pet Care behind the continuing impacts from the product recalls in the previous fiscal year for Natura.”

Beauty was the only segment to post zero organic sales growth, and also posted just one percent organic volume growth. “Gains from market growth and innovation in Prestige, Hair Care, Deodorants, and Personal Cleansing were offset by geographic and product mix and a decrease in Skin Care sales.”

As a result of its relatively slow growth, Procter & Gamble continues to lag some of its major competitors on the stock chart. Shares of Johnson & Johnson (NYSE:JNJ) are up more than 26 percent on the year while shares of Kimberly-Clarck (NYSE:KMB) are up nearly 22 percent, which compares against about 11 percent growth for Procter & Gamble over the same period. Johnson & Johnson recently posted 4.5 percent revenue growth and 4.2 percent earnings growth (adjusted for a one-time charge in the comparable period last year), beating analyst estimates and once again outpacing Procter & Gamble.

Kimberly-Clark reported earnings on Friday morning alongside Procter & Gamble, also beating analyst expectations. Revenue were flat on the year but earnings of $1.44 per share beat the mean analyst estimate by 5 cents.

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