Procter & Gamble (PG - Free Procter & Gamble Stock Report), a producer of branded consumer packaged goods that are marketed in more than 180 countries worldwide, has reported fiscal first-quarter results. (Fiscal 2012 began July 1, 2011.) Sales were $21.9 billion, which compared favorably to both the year-earlier figure ($20.1 billion) and our target ($21.7 billion). Share earnings were up a penny from a year before, to $1.03, which was in line with our estimate.
The strong top-line growth was broad based, as all six of P&G's businesses notched healthy sales gains. Moreover, excluding the impact of acquisitions, divestitures, and favorable foreign exchange rates, revenues would have risen roughly 4% behind higher volumes and better pricing, which is noteworthy given the lackluster economic backdrop. As expected, bottom-line growth was subdued, however, owing to a fairly steep drop in the operating margin. SG&A costs were up as a percentage of the top line, due to hefty outlays for marketing expenses that were needed to support global expansion initiatives. Higher commodity costs took an even larger toll on profitability.
We have decreased our fiscal 2012 top- and bottom-line estimates, owing to the difficult operating environment as well as the company's so-so September-period performance. We now expect sales to rise nearly 6%, to $87.1 billion, down almost $1.4 billion from our previous call. Better pricing will likely drive the bulk of the revenue advance, though unfavorable product and geographic mixes will probably be stiff headwinds. Currency translation is expected to have a minimal impact on full-year results. We also reduced our share-net estimate by $0.03, to $4.23, which is on the lower end of management's guidance range ($4.17-$4.33). Our target would still represent share-earnings growth of about 8%. Most of the advance is expected to come in the second half of the fiscal year, once product price hikes gain traction, commodity cost inflation decelerates, and productivity-improvement and cost-cutting programs are in full swing.
There was not much reaction on Wall Street, as PG shares were little changed in a sharply higher equity market in the early hours following the earnings announcement. We are maintaining our view that this blue chip would make a fine addition to a variety of portfolios. Long-term capital appreciation potential is good on a risk-adjusted basis, considering PG stock gets high marks for Price Stability, receives our Highest Safety rank, and has a very low Beta. The healthy dividend yield of 3.3% and ongoing share repurchases also add to this equity's appeal. All told, we think conservative investors, as well as those looking to add a position in a defensive sector, should look into PG shares.
About The Company: The Procter & Gamble Company makes detergents, soaps, toiletries, foods, paper, & industrial products. Brands include: Always, Head & Shoulders, Olay, Pantene, Wella, Actonel, Dawn, Downy, Tide, Bounty, Charmin, Pampers, Folgers, Iams, Pringles, Gillette, MACH3, Braun, and Duracell. Acquired Gillette in October, 2005, and divested Folgers in June, 2009. U.S. sales accounted for 39% of total last year, while Wal-Mart Stores (WMT - Free Wal-Mart Stock Report) accounted for 15%. Three operating segments are Beauty Care, Health & Well Being, and Household products.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.