Procter & Gamble (PG, Financial), one of the hallowed dividend aristocrats of our time, has been going through a period of turbulence. After watching its sales decline post 2012, the company started restructuring itself, selling off many brands as it tried to create a lean, high-margin product portfolio.
There was some hope that the company would slowly start recovering as organic sales improved during the first half of the current fiscal, but the way organic sales growth has been coming down during the last three quarters is genuine cause for concern.
Third-quarter results were a mixed bag as Procter & Gamble beat analyst estimates on the earnings front but came in lower on the revenue front. Procter & Gamble posted earnings per share of 96 cents on the back of $15.61 billion in revenues, against market forecasts of 94 cents earnings per share and $15.73 billion in revenues.
Procter & Gamble shares started moving lower after the earnings results, and it may continue to remain under pressure until Procter & Gamble reports its next quarterly earnings. One other factor that possibly influenced the downward stock price movement was Procter & Gamble’s organic sales for the quarter, which have come in well below its own expectation. Procter & Gamble has forecasted 2% to 3% organic sales for full fiscal 2017 but ended up reporting only 1% growth for the quarter.
Health care is the only segment that has managed to grow above the 5% mark for the past two quarters. Fabric & Home Car, and Baby, Feminine & Family Care have notched up just 1% increase for the past two quarters, while Grooming grew 1% during the second quarter only to sharply decline by 6% during the third. Unless things dramatically improve during the fourth quarter, it’s going to be a bit difficult for Procter & Gamble to hit its own organic sales growth targets.
The good news is that Procter & Gamble has not revised its organic sales growth targets downward, which means it expects things to be better during the fourth quarter. But until those numbers come out, Procter & Gamble will remain under pressure.
- Procter & Gamble said it is maintaining its guidance for organic sales growth in the range of 2% to 3% for fiscal 2017.
- Fiscal year to date, the company is at the low end of this range.
- The company expects the combined headwinds of foreign exchange and minor brand divestitures to reduce sales growth by two to three percentage points.
- As a result, Procter & Gamble estimates all-in sales to be down 1% to in line with the prior fiscal year.
Procter & Gamble earnings release
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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