Behind Procter & Gamble’s Winning Streak in Earnings

Inside Procter & Gamble's Soaring Operating Margin in Fiscal 3Q16

P&G’s fiscal 3Q16 earnings

Procter & Gamble (PG), or P&G, released its fiscal 3Q16 earnings on April 26, 2016. The quarter ended on March 31, 2016. The company’s diluted net EPS (earnings per share) increased by 29% to $0.97, while its core earnings fell by 3% to $0.86 per share in fiscal 3Q16. P&G’s revenue fell by 6.9% to $15.8 billion in fiscal 3Q16.

P&G came in ahead of consensus Wall Street analyst estimates on earnings for the fourth consecutive quarter in fiscal 3Q16. Consensus estimates had projected adjusted EPS of $0.82.

Earnings versus peers

Excluding the impact of foreign exchange headwinds, P&G’s currency-neutral core EPS did not change in the quarter. Diluted net earnings from continuing operations decreased one percent to $0.81. However, the increase of 29% in reported diluted earnings was primarily driven by impacts from discontinued operations and impairment charges related to the batteries business in the base period.

Similarly, adjusted EPS for Kimberly-Clark (KMB) also increased by 8% YoY (year-over-year) to $1.53 in 4Q15. This was due to a lower adjusted effective tax rate, which contributed six points to earnings. Colgate-Palmolive (CL) and Clorox (CLX) have yet to announce their 1Q16 and fiscal 3Q16 results. Unilever’s (UL) reports EPS changes every six months.

Stronger foreign exchange headwinds

Across the globe, significant economic and political instability has hurt incomes and consumption in important markets like Russia, the Ukraine, Egypt, Saudi Arabia, Argentina, Venezuela, and Brazil. While the dollar has softened a bit recently, P&G still faced $1 billion of after-tax net earnings impact, which is a $0.2 billion increase just since the start of December according to Chief Financial Officer Jon Moeller’s comments.

According to Jon Moeller, foreign exchange impact, Venezuela, and taxes added to the company’s EPS growth headwind of 20% in 3Q16. However, P&G is planning to focus on big opportunities by transforming its portfolio strengthening innovation plans.

Notably, PG made up 4.3% of the PowerShares S&P 500 Quality Portfolio ETF (SPHQ) as of April 26, 2016.

Now let’s examine why P&G missed revenue estimates in fiscal 3Q16.

Continue to Next Part

Browse this series on Market Realist:

• Part 2 - Why Procter & Gamble’s Fiscal 3Q16 Revenue Fell while Its Organic Sales Grew

• Part 3 - Inside Procter & Gamble’s Beauty Segment Organic Sales Growth in Fiscal 3Q16

• Part 4 - How FX Impacted Procter & Gamble’s Grooming Segment by 7% in Fiscal 3Q16