The Procter & Gamble Company (PG) reported weak fiscal first-quarter 2015 results missing the Zacks Consensus Estimate for both earnings and sales. The consumer products giant reiterated its outlook for the next fiscal. However, it expects significant foreign exchange headwinds to impact sales and earnings in the next quarter.
P&G’s first quarter adjusted earnings (excluding non core items) of $1.07 per share lagged the Zacks Consensus Estimate of $1.08 per share by a penny.
However, earnings increased 2% year-over-year in the quarter despite currency headwind of 7 cents. Excluding currency headwinds, earnings increased 9% owing to pricing gains and cost reductions.
Revenues and Margins
P&G’s net sales remained flat at $20.79 billion due to a 1% headwind each coming from currency and minor divestures. With around 60% of the company’s business generated outside North America, a strong dollar lowered the value of international sales. The top line narrowly missed the Zacks Consensus Estimate of $20.87 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. Pricing and product mix contributed 1% each to sales, while foreign exchange and other items hurt revenues by 1% each. Acquisitions and divestitures did not impact sales in the quarter.
Core gross margin improved 20 basis points (bps) to 49.7% due to increased focus on productivity in cost of goods sold and cost savings.
Core selling, general and administrative expenses (SG&A) increased 30 bps (as a percentage of sales) to 29.7%. Core operating margin declined 20 bps to 19.9% as higher SG&A ratio offset improved 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.
During the quarter, P&G closed the divestiture of its Pet Care business to Mars, Inc. In addition, in September, P&G signed an agreement to divest its European pet business to Spectrum Brands.
Also, P&G announced to exit the Duracell personal power business by creating a standalone Duracell company in order to focus and strengthen its brand and category portfolio.
Fiscal 2015 Outlook Reiterated
P&G has reiterated its guidance for organic sales and core earnings per share.
The company continues to expect core earnings per share 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 2%. However, organic sales are continued to grow in the low-to-mid single-digit range.
The Zacks Consensus Estimate for 2015 stands at $4.41 per share, up 5% from the prior year. This is in-line with the company’s expectations.
P&G carries a Zacks Rank #4 (Sell).
Other Stocks to Consider
Some better-ranked consumer staples companies include Post Holdings, Inc. (POST), The Hain Celestial Group, Inc. (HAIN), and McCormick & Co. Inc. (MKC). While Post Holdings sports a Zacks Rank #1 (Strong Buy), Hain Celestial and McCormick carry a Zacks Rank #2 (Buy).
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