Branded consumer packaged goods manufacturer Procter & Gamble (PG – Free Procter & Gamble Stock Report) recently reported first-quarter results (fiscal years end June 30th). The top line came in at $21.2 billion, up 2% year to year, including 2% of negative currency translation. This was more than $100 million better than our target and roughly $300 million ahead of the consensus. However, pricing was flat, and sales growth was uneven across P&G's five segments, with just two businesses registering year-over-year gains. Gross margins were lower, owing to geographic and product mix, higher commodity costs, etc. This was partially offset by a reduction in SG&A expenses as a percentage of the top line, as restructuring spending was lower and marketing outlays were down. As a result, share earnings were $1.04 on a GAAP basis and $1.05 on an adjusted perspective. The adjusted figure was down 1% compared with the year earlier, and just shy of the $1.06 both Value Line and most Wall Street shops were expecting.
The Beauty segment's net sales dropped 1%, as better volumes were more than offset by unfavorable foreign exchange and weaker geographic and product mixes. The company highlighted innovation in home care, deodorants, cosmetics, and personal cleansing, while noting that the skin care division struggled a bit. Still, the markets are growing, which ought to augur well for organic sales growth.
At Grooming, the top line fell 3%. This group was one of the few to gain ground on the pricing front, but volumes were down 1% and unfavorable currency translation amounted to 2%. The better pricing was the result of innovation in blades & razors and appliances. The lower volumes, however, were likely the result of market contraction in developed regions.
Health Care revenues dipped 1%, as modest pricing gains were more than mitigated by a trio of lower volumes, negative foreign exchange, and an unfavorable product mix. Looking at the big picture, better personal health care results were hurt by sharp decreases in pet care, which were largely the result of Natura product recalls. The company is working to expand the geographic reach of the oral care unit, though, which is a positive going forward.
Fabric Care & Home Care sales rose 3%, thanks to handsome volume growth. The overall mix was better, too, but foreign exchange stripped away 3% of the volume growth and pricing was slightly lower. The segment boasted strong growth in each product category.
Finally, the Baby, Feminine & Family Care segment reported the strongest revenue growth of 5%. Volumes were especially stout, up 6%, and unfavorable currency translation was just 1%. Pricing, product mix, and geographic mix were not large factors. Innovation on the baby care and family care fronts drove the volume growth, and the baby care market is growing in developing regions.
The reaction on Wall Street was largely expected, as PG shares traded slightly lower following the earnings release. Over the past six months, the stock has bounced back and forth between $76 and $82 a share, though it is currently trading just shy of its 52-week high. Our near-term estimates and view of PG shares have not changed much, as there were no surprises in the first-quarter earnings release. Fiscal 2014 sales will likely approximate $85.8 billion, an increase of 2% from a year earlier. Share earnings should grow in the neighborhood of 6%, to $4.30. Investors' confidence is improving here, on average, which should support the share price in the near term. The dividend yield is above the Value Line median, and high-quality PG shares are as stable as they come.
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, Iams, Gillette, MACH3, Braun, and Duracell. Acquired Gillette in October, 2005, and divested Folgers in June, 2009. U.S. sales accounted to 39% of total revenues in fiscal 2013, while Wal-Mart Stores (WMT – Free Wal-Mart Stock Report) accounted for 14%.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.