The Procter & Gamble Company (PG) reported mixed fiscal fourth-quarter 2014 results beating the Zacks Consensus Estimate for earnings but missing the same for sales. The consumer products giant met its financial targets for the year and issued a positive outlook for the next fiscal year. Shares rose 1.7% in pre-market trading.
P&G’s fourth-quarter adjusted earnings (excluding restructuring cost and charges for European legal matters) of 95 cents per share beat the Zacks Consensus Estimate of 91 cents by 4.4%.
Moreover, earnings increased 20% in the quarter despite currency headwinds of 4 cents. Excluding currency headwinds, earnings increased 25% as pricing gains, cost reductions and lower taxes boosted earnings in the quarter.
Revenues and Margins
P&G’s net sales declined 1% to $20.16 billion due to a headwind from currency and negative impact of divestures. With around 60% of the company’s business generated outside North America, a strong dollar lowered the value of international sales. Top line narrowly missed the Zacks Consensus Estimate of $20.397 billion.
Organically (excluding the impact of acquisitions, divestitures and foreign exchange), revenues were up 2% as better pricing made up for softer volumes.
Organic volumes were flat in the quarter, lower than an increase of 3% in the previous quarter. Pricing increased sales by 2%, higher than 1% in the previous quarter. Foreign exchange and divestures hurt revenues by 2% and 1%, respectively. Geographic/product mix was flat in the quarter.
Core gross margin declined 50 basis points (bps) to 47.7% due to soft volumes, currency headwinds and higher commodity costs.
Core selling, general and administrative expenses (SG&A) improved 220 bps (as a percentage of sales) to 30.6% due to productivity gains and lower overhead costs. Core operating margin improved 170 bps to 17.1% as gains from lower SG&A ratio made up for the weak gross margins.
The maker of Tide detergents and Pampers diapers, under the leadership of the new CEO A.G. Lafley is investing selectively in the most profitable businesses, making focused investments in innovation and go-to-market capabilities, accelerating cost savings and improving productivity in order to turn around its business and improve its competitive position.
Annual Results
In fiscal 2014, the company witnessed a 1% increase in revenues to $83.1 billion, slightly missing the Zacks Consensus Estimate of $83.51 billion. The top-line increase was in line with management’s expectation of approximately 1%. Organic sales grew 3%, at the lower end of the company’s guidance range of 3% to 4%.
Adjusted earnings (excluding restructuring charges, charges for European legal matters and balance sheet devaluation charges) were $4.22 share, which beat the Zacks Consensus Estimate of $4.19. Earnings increased 5% from the prior year, at the higher end of management’s guidance range of 3–5%.On a constant currency basis, core earnings increased 14%, also at the higher end of the company’s expectations of 12–14% growth.
Fiscal 2015 Outlook Issued
Core earnings per share are expected to grow in a mid-single digit range in fiscal 2015. Net revenue growth is expected in the low single-digit range. Currency is expected to hurt revenues by 1%. However, organic sales are expected to increase in low-to-mid single-digit range.
The Zacks Consensus Estimate for 2015 was looking for earnings per-share growth of 7.5% and revenue growth of 2.4%.
Other Stocks to Consider
P&G carries a Zacks Rank #4 (Sell). Some better-ranked consumer staples companies include Newell Rubbermaid Inc. (NWL), PepsiCo, Inc. (PEP), and Dr Pepper Snapple Group, Inc. (DPS). All the three stocks carry a Zacks Rank #2 (Buy).
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