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Will Procter & Gamble (PG) Disappoint Earnings Again in Q2? - Analyst Blog

The Procter & Gamble Company (PG) is set to report second-quarter fiscal 2015 results on Jan 27, before the market opens. Last quarter, it delivered a negative earnings surprise of 0.93%. Let’s see how things are shaping up for this announcement.

Factors at Play

P&G is in the process of divesting around 100 underperforming brands to concentrate better on fewer core strategic brands. In this regard, the company sold off its American and Asian pet care business to Mars, Inc. and European pet care business to Spectrum Brands Holdings, Inc. (SPB) last year. Moreover, P&Ghas signed a deal to divest its Duracell batteries business to Berkshire Hathaway in exchange for Berkshire’s equity stake in P&G.

However, these structural changes and other initiatives to boost organic growth are yet to translate into top-line improvement.

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Slowing global market growth, strong currency headwinds, market level challenges in the Ukraine, Russia, the Middle East, Venezuela, Argentina and Hong Kong and rising commodity costs have made the operating environment challenging for P&G. These headwinds are expected to continue in the future quarters as well.

Like the first quarter, the second quarter will face tough comparisons with the last year. Moreover, the company expects significant currency headwinds in the second quarter. Overall, P&G is expecting better growth in the second half of the year.

However, accelerated productivity gains, cost savings and higher pricing should lend some support.

Earnings Whispers?

Our proven model does not conclusively show that P&G is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for P&G is -1.74% as the Most Accurate Estimate stands at $1.13 which is lower than the Zacks Consensus Estimate of $1.15.

Zacks Rank: P&G carries a Zacks Rank #4 (Sell).

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Investors may consider the following stocks in the consumer staples/retail sector that have a positive Earnings ESP and a favorable Zacks Rank:

SUPERVALU, Inc. (SVU) with an Earnings ESP of +4.76% and a Zacks Rank #1.

Sysco Corp. (SYY) with an Earnings ESP of +2.44% and a Zacks Rank #2 (Buy).


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PROCTER & GAMBL (PG): Free Stock Analysis Report
 
SUPERVALU INC (SVU): Free Stock Analysis Report
 
SPECTRUM BRANDS (SPB): Free Stock Analysis Report
 
SYSCO CORP (SYY): Free Stock Analysis Report
 
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