Procter & Gamble Co. (PG) reported modest results for the fourth quarter of 2011. Net earnings from continuing operations were 84 cents a share, up 18.0% year-over-year, and two pennies above the Zacks Consensus Estimate of 82 cents. Profits were driven by sales growth and operating margin expansion.
Earnings for the full year 2011 went up 11% year over year fuelled by sales growth and a lower effective tax rate to $3.93 per share. The full year earnings matched Zacks Consensus estimate.
Procter & Gamble forecasts first-quarter 2011 net earnings from continuing operations and core earnings to be in the range of $1.00 to $1.04 per share, a decrease of two percent versus an increase of two percent in the corresponding prior-year quarter. The guidance implies that P&G will continue to engage in several innovations and invest in various marketing program. The Zacks Consensus Estimate for the third quarter is expected to be$1.14 per share.
Diluted net earnings per share from continuing operations and Core EPS are expected to be in the range of $4.17 to $4.33, up by 6 to 10 percent (point?). The Zacks Consensus Estimate for fiscal 2011 is $4.28.
Revenue and Margins
P&G’s net sales inched up marginally by 10% to $20.9 billion in the fourth-quarter fiscal 2011. Excluding the impact of acquisitions, divestitures and foreign exchange, organic sales grew by 3% in the reported quarter.
For fiscal 2011, net sales increased 5% to $82.6 billion on the back of volume growth of 6%. Excluding the impact of acquisitions, divestitures and foreign exchange, organic sales increased 4% in the year.
For the quarter volume growth was broad-based led by high single-digit growth in Baby Care & Family Care. All geographic regions maintained or grew volume. In the year 2011, unit volume increased in all reportable segments due to investments in innovation and market expansions, such as ‘Olay’ and ‘Head & Shoulders’ in Brazil, ‘Gillette Guard’ in India.
Procter & Gamble, the leading manufacturer and seller of consumer goods, projects net sales and organic sales (based on solid volume momentum, partially offset by product mix and pricing) to inflate 5%–9% and 3%–6%, respectively, in the fiscal year 2011. For first quarter 2012, net sales are expected to grow by 6%–9%. Organic sales are expected to grow two to four percent
Gross margin for the quarter declined 120 basis points primarily attributable to higher commodity costs and unfavorable product mix. For the year, gross margin contracted 140 basis points to 50.6 percent of net sales due to higher commodity costs and unfavorable product mix, partially offset by cost savings on manufacturing.
Operating margin increased 10 basis points (bps) in 4Q11, behind lower selling, general and administrative expenses (SG&A) as a percentage of net sales, partially offset by a lower gross margin. For the full year operating margin sunk by 110 bps due to gross margin contraction, partially offset by lower SG&A as a percentage of net sales.
Other Financial Updates
Procter & Gamble exited the quarter with cash and cash equivalents of $2,768 million and long-term debt of $22,033 million.
We are encouraged by the company’s expansion of its portfolio of brands, both through internal development and acquisition. However, Procter and Gamble currently is facing high commodity cost inflation and severe competition from companies like Kimberly-Clark Corporation (KMB) and Johnson & Johnson (JNJ) in the Western European markets in both the blade and battery businesses.
P&G holds a Zacks #3 Rank, translating into a short-term ‘Hold’ rating.
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