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Can Procter & Gamble (PG) Surpass Earnings Estimates in Q1?


The Procter & Gamble Company PG is set to report first-quarter fiscal 2019 results on Oct 19, before the opening bell. In the last-reported quarter, the company delivered positive earnings surprise of 4.4%.

A glimpse of the company’s earnings performance in the trailing four quarters shows that it outpaced estimates by an average positive surprise of 3%. Additionally, the company’s surprise history reveals that it outpaced earnings estimates in the last 13 quarters.

The Zacks Consensus Estimate for the fiscal first quarter is pegged at $1.10 per share, reflecting year-over-year growth of 0.9%. Moreover, the consensus estimates remained unchanged in the last 30 days. Analysts polled by Zacks anticipate total revenues of $16.59 billion, which reflects year-over-year decline of 0.4%.

Procter & Gamble Company (The) Price and EPS Surprise

Procter & Gamble Company (The) Price and EPS Surprise | Procter & Gamble Company (The) Quote

How Things are Shaping Up for This Announcement

Despite a robust earnings trend, we note that Procter & Gamble’s top-line growth remains muted (up only 1% in fiscal 2018) given multiple headwinds — including slow category growth, heightened competitive environment and retailer inventory destocking. Further, pricing remained negative for P&G for the third consecutive quarter in fourth-quarter fiscal 2018. Soft pricing mainly reflected elevated merchandising investments to combat increased competition.

Furthermore, Procter & Gamble continues to face challenges in Grooming and Baby Care businesses. Organic sales for the Grooming segment have slumped for nearly six consecutive quarters, while sales for Baby Care declining in the last four quarters. Aggressive competitive activity, changes in grooming fashions and habits, and increased online competitors in some markets like the U.S. are hurting the performance.

The company is making significant progress in improving sales for the Gillette brand (Grooming segment). However, new challenges related to a value-share competitor, expanding in-store distribution in the U.S., and increased online competition in Europe are likely to weigh on the segment’s performance. In the Baby Care business, the company has strengthened positioning for Pampers diapers in China and India. However, aggressive private-label pricing is hurting sales for the Luvs brand in the United States.

Further, there is skepticism surrounding the company’s recently announced pricing moves as it may intensify weakness in demand and lower consumption. P&G plans to increase prices for some of its leading brands in a bid to offset impacts of rising commodity (due to costlier wood pulp impacting the paper industry) and transportation costs. The company is currently hiking prices by 4% for the Pampers brand in North America, and about 5% for its Bounty, Charmin and Puffs brands. Higher prices are expected to be effective by the end of 2018 — with Pampers becoming costlier from July through September; Bounty and Charmin in late October, and Puffs by February 2019.

Consequently, the stock has lagged the industry in the last three months. While the stock dropped 14.2%, the industry declined 8.7%.

However, the company is benefiting from higher demand for skincare products along with fabric and home care products. Further, management remains focused on product improvement, packaging and marketing initiatives, and productivity cost-savings plan.

The company’s productivity and cost-saving plans helped it deliver robust earnings despite soft sales. Cost savings have consistently provided 200-300 bps of year-over-year margin benefit each quarter since fiscal 2012.

Additionally, the company’s focus on improving product portfolio through initiatives, which enables it to concentrate on its fast-growing businesses, is aiding the bottom line. As part of this, the company adheres to a systematic acquisition and divestiture plan to streamline portfolio. This is evident from the agreement to buy consumer-health business of Germany-based Merck KGaA, which will replace P&G’s joint venture with Teva Pharmaceutical Industries — PGT Healthcare joint venture.

Given the above-mentioned pros and cons, we would prefer to wait and see what’s in store for this consumer goods company in the quarter to be reported.

What the Zacks Model Unveils

Our proven model does not conclusively show that Procter & Gamble is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Procter & Gamble’s Earnings ESP of -0.27% and Zacks Rank #3 make surprise prediction difficult.

Stocks to Consider

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to deliver an earnings beat:

Callaway Golf Company ELY has an Earnings ESP of +221.42% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

V.F. Corp. VFC has an Earnings ESP of +1.87% and a Zacks Rank #2.

Snap-On Incorporated SNA has an Earnings ESP of +0.67% and a Zacks Rank #2.

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