Consumer goods giant Procter and Gamble (PG, Financial) saw net sales jump by 3% to $17.4 billion compared to the prior year, in spite of a soft consumer sales market that has been plaguing the industry in recent years.
At the same time, the maker of Charmin tissue and Tide detergent announced net earnings of 93 cents per share, a 68% decline it partly attributed to the new U.S. Tax Cuts and Jobs Act. In addition, the company said it was returning $3.6 billion of cash to shareholders via $1.8 billion of dividend payments and $1.8 billion of a common stock repurchase.
The results were disclosed as part of its second-quarter fiscal year 2018 earnings.
Early afternoon trading showed shares down 3% at $89.13. The price is up 2% compared to late October.
Beating analysts expectations
Overall, the Cincinnati-based company beat analyst expectations for another consecutive quarter.
Barclays had expected a 1.9% increase in organic sales growth.
Thomson Reuters had expected core earnings of $1.14 a share. The company exceeded that, reporting core earnings per share of $1.19, a 10% climb.
Gross profits for the three months ended Dec. 31 show $8.728 billion versus $8.558 billion over the same period last year. That’s an improvement of 2%.
Struggling sales
In recent years, the company has been struggling to improve sales. U.S. prices for staples such as laundry detergent and tissue paper have been steadily falling, creating an environment of intense competition. The company has responded to the changes with efforts at cost savings and increased production.
In the quarter, it saw a 3% decline in organic sales in its baby care and grooming segment (shave care). Company officials said the declines were primarily due to pricing reductions in the U.S.
Meanwhile, it saw organic sales growth in other sectors, totaling 2% overall. Its beauty segment has experienced an increase on products driven by the Olay brand and major brands like Pantene, Head & Shoulders, Herbal Essences and Rejoice. Other increases were in the fabric and home care and health care segments.
Net earnings drop
Net earnings fell to $2.495 billion in the current quarter compared to $7.875 billion during the same period last year. The current net earnings were based on an effective tax rate of 36.5%. Last year’s earnings were calculated on a 21.3% tax rate. The change is the result of the new tax law.
Total revenue has been on the decline over the last three years.
GuruFocus indicators
The company has a market cap of $225 billion and is ranked 6 of 10 in financial strength and in profitability and growth, according to GuruFocus.
Its price-earnings ratio (P/E) is 15.58 versus the industry median of 19.68.
It also has a dividend yield of 3.10% versus the industry median of 2.62%.
Donald Yacktman (Trades, Portfolio)'s Yacktman Asset Management owns 15 million shares of the giant consumer goods company. Ken Fisher (Trades, Portfolio) owns 8.8 million shares, followed by Dodge & Cox (141,000); Mario Gabelli (Trades, Portfolio) (140,000); Ruane Cunniff (Trades, Portfolio) (32,100); and Joel Greenblatt (Trades, Portfolio) (7,500).
The Peter Lynch chart below suggests the stock is overvalued.
The median is $56 a share.
