Procter & Gamble: Will Slow and Steady Win the Race?

Plant Money


Procter & Gamble (NYSE:PG) edged marginally lower in early morning trading on Friday after reporting middle-of-the-road fiscal first-quarter financial results. The consumer products company reported that net sales increased 2 percent on the year to $21.2 billion, which includes a -2 percent impact from currency exchange, beating the mean analyst estimate of $21.05 billion. Core earnings fell 1 percent on the year to $1.05 per share, in line with the mean analyst estimate. Comparable diluted net earnings were up 8 percent on the year at $1.04 per share.

Chairman, President, and CEO A.G. Lafley captured the mood, saying in the earnings report that Procter & Gamble’s results “were consistent with our plans and expectations, putting us on track to deliver our goals for the fiscal year.” The firm reiterated its full-year fiscal 2014 guidance, giving investors nothing new to look forward to.

Organic sales are expected to grow between 3 percent and 4 percent, and net sales growth is estimated in a range between 1 percent and 2 percent, including negative forex of 2 percent. Core earnings per share are expected to grow between 5 and 7 percent, while reported earnings per share are expected to grow between 7 percent and 9 percent.

All told, not bad, but also not great. Procter & Gamble stock has floundered over the past three months, only recently regaining the $80 price level after falling below $76 per share as optimism over Lafley’s return to the company and its major restructuring program moderated alongside core performance.

To be clear, Procter & Gamble was, is, and will likely continue to be one of the strongest consumer businesses on the planet. The stock is a staple in many if not most long-term portfolios, and most investors are not expecting dramatic changes in sales or earnings growth in the coming years. Historically, the company has excelled at levelheaded competence and has remained in its leading position due in part — perhaps largely — to its ability to focus on what’s important, and innovate and grow within those areas.

Procter & Gamble is one of the oldest companies on the block, and it has been a beacon of stability in the stock market since it was first traded on the New York Stock Exchange in 1891. The company has increased its dividend at least once per year since 1957, and investors in the company currently enjoy a healthy 3 percent yield. P&G boasts an operating margin of about 18.71 percent and arguably the most recognizable portfolio of brands on the planet — the company has 22 billion-dollar brands including Gillette, Tide, and Pampers.

Total organic sales volume increased 4 percent in Procter & Gamble’s fiscal first quarter. The growth was led by 6 percent gains in both the Fabric Care and Home Care segment; and the Baby, Feminine and Family Care segment. Health Care organic sales were flat, and Beauty and Grooming each experienced 1 percent growth.

Compared to competitors like Johnson & Johnson (NYSE:JNJ) and Kimberly-Clark Corp. (NYSE:KMB), P&G has had a fairly underwhelming year to date on the stock chart. Shares of P&G have climbed just over 16 percent through Thursday, lagging behind the S&P 500 index. Meanwhile, Johnson & Johnson has climbed just more than 30 percent over the same period, while Kimberly-Clark stock is up just over 20 percent.

Earlier in the Week, Kimberly-Clark reported third-quarter profit of $1.44 per share, a 7 percent gain on the year and ahead of analyst expectations for a gain of $1.40 percent. Organic sales grew 5 percent, and the company gave investors something to cheer about when it raised its full-year earnings guidance by 5 cents to a range between $5.65 and $5.75 per share.

Earlier in October, Johnson & Johnson reported that sales increased 3.1 percent on the year to $17.6 billion and adjusted earnings grew 8.8 percent to $1.36 per share. Johnson & Johnson also increased its earnings guidance to between $5.44 and $5.49 per share. Most of Johnson & Johnson’s growth occurred overseas. International sales grew 4.2 percent compared to 1.7 percent growth domestically.

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