Yahoo Finance P&G's Strategic Plans on Track; Revenue Pressures Remain - Analyst Blog
On May 14, we issued an updated research report on The Procter & Gamble Company PG.
P&G reported third-quarter fiscal 2015 results on Apr 23 wherein earnings matched the Zacks Consensus Estimate. However, revenues fell short of the consensus mark — for the fifth time in a row.
Earnings of 92 cents per share declined 8% year over year due to currency headwinds.
Organic revenues went up 1%, as better pricing and favorable product mix made up for the softer volumes. Moreover, the maker of Tide detergent and Pampers diaper was compelled to lower the 2015 sales outlook in view of higher-than-expected negative impact from currency. However, management reiterated its core earnings per share guidance.
The consumer goods giant enjoys strong fundamentals including solid brand recognition, diversified portfolio, aggressive cost-savings program, rapid growth in developing nations, impressive product development capabilities and marketing prowess.
Moreover, the company is investing in its brands and products as well as re-designing its supply chain to improve results, going forward. It is also progressing well on its plan to divest around 100 underperforming brands to concentrate better on fewer core strategic ones. We believe that a smaller and more focused company would be able to grow faster, create more value and be much easier to manage.
In keeping with this plan, last year, P&G sold off its American and Asian pet care business to Mars, Inc. in July and the European pet care business to Spectrum Brands Holdings, Inc. SPB in December. Moreover, the company has signed a deal to divest its Duracell batteries business to Berkshire Hathaway, Inc. BRK.B in exchange for Berkshire’s equity stake in P&G. In addition, P&G has exited the Bleach business, Vicks VapoStream, Camay and Zest bar soap brands, and several skin care and fragrance brands.
However, we believe that these portfolio restructuring and productivity initiatives will take time to boost earnings amid a challenging operating environment
P&G is struggling to grow sales due to slowing global market growth, significant negative Fx impact, and macroeconomic headwinds in many key markets. These headwinds are expected to continue in the future quarters as well.
Moreover, market share erosion and lower consumption in several countries due to pricing action taken to offset currency impacts is also hurting sales since the past 2-3 quarters. With around 60% of the company’s business generated outside North America, currency headwinds affected sales by 8% in the third quarter as a strong dollar lowered the value of virtually every currency in the world. In the past 2-3 quarters, P&G took Fx-related pricing action in several emerging markets.
P&G carries a Zacks Rank #3 (Hold). A better-ranked consumer staple stock is Unilever plc UL with a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
PROCTER & GAMBL (PG): Free Stock Analysis Report
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis Report
UNILEVER PLC (UL): Free Stock Analysis Report
SPECTRUM BRANDS (SPB): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
