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Dow-30 Earnings: Procter & Gamble - Fourth Quarter Fiscal 2013
The Procter & Gamble Company (PG - Free Procter & Gamble Stock Report), a leading manufacturer of branded consumer packaged goods, recently reported fiscal fourth-quarter results (years end June 30th). June-period sales rose 2% compared with a year earlier, to $20.7 billion, which was in line with our estimate and about $100 million above the consensus target of $20.6 billion. Management said that volume increases spurred organic top-line growth of 4%, while currency translation headwinds reduced the revenue number by about 2%. As expected, the fourth-quarter EBITDA margin was narrower, as manufacturing and productivity savings and sales leverage were more than offset by unfavorable foreign exchange, geographic and category mix, investments in marketing and production capacity increases, new product development efforts, and higher employee-related expenses. Pricing in the period was largely unchanged from a year ago. As a result, adjusted share earnings slipped 4%, to $0.79. The bottom-line figure was, however, two pennies ahead of both our estimate and the Wall Street consensus.
Looking at the individual parts, the Beauty segment's sales grew 1% in the fiscal fourth quarter, to $4.9 billion. Volumes were up nicely, thanks to advances on the hair care, personal cleansing, cosmetics, and deodorants fronts. Pricing was mostly flat, however, as small gains here and there were largely offset by promotional activity in the highly competitive skin care arena. Unfavorable currency translation effects and a weaker product mix also took a slight toll on the top line. The Beauty group's operating and after-tax profits rose 6%, though, as a narrower gross margin was overcome by reduced SG&A costs and a lower effective tax rate.
Grooming revenues slipped 1% in the final period, to $2.0 billion. On the bright side, management said that sales of blades and razors increased, as further growth in developing regions was only partially offset by softness in developed markets. (Based on the commentary, we surmise that volumes were pretty flat in North America and down slightly in Europe.) Appliances revenues dropped, owing to asset divestitures, high levels of competitive activity, and foreign exchange headwinds. Profits were 1% better in this category, though, as higher pricing and manufacturing savings more than offset increases in marketing spending.
The Health Care segment was the clear standout performer in the in June quarter, as sales climbed 6% and after-tax earnings jumped 15%. Geographic expansion and market share gains propelled oral care revenues, while feminine care sales continued to flatten out, as improving share trends at home were mitigated by higher currency translation headwinds abroad. Finally, the addition of New Chapter helped the personal health care unit to deliver decent sales growth. The wide bottom-line expansion was thanks to top-line leverage and overhead reductions, which easily mitigated higher marketing spending and increased input costs.
Fabric Care & Home Care continued its slow and steady ascent in the fourth quarter, as geographic expansion and innovation continued to drive low single-digit sales growth (up 3%, to $6.7 billion). Batteries revenues increased, thanks to higher pricing, while pet care results suffered from the Natura pet food recall. Segment earnings dropped 2% after taxes, though this was mostly due to the costs associated with the aforementioned recall, as gross margins were much improved thanks to productivity-improvement efforts.
Finally, Baby Care & Family Care sales rose 2%, to $4.2 billion. Baby care revenues slipped marginally, as growth in developing regions and other inroads were clipped by unfavorable foreign exchange. Family care's top line fared much better, as innovation seemed to help spur demand in both North and South America. Segment profits dipped 5%, however, expense reduction efforts were overtaken by start-up costs for new manufacturing capacity, a weaker product mix, and flat pricing.
For the full fiscal year, P&G hit its internal sales guidance and beat its share-earnings goals. The top line improved 1%, to $84.2 billion, which was a seemingly solid effort given the uneven global economic backdrop and stiff foreign exchange headwinds. Adjusted share net grew 5%, to $4.05, thanks largely to restructuring efforts and productivity improvement initiatives. The company also reported that market share trends have been improving, and cash flow was better than expected.
We expect the company to tell a very similar story in fiscal 2014. We look for all-in sales growth of 2%-3%, as organic growth of about 4% will likely be softened by unfavorable foreign exchange impacts of 1%-2%. We think adjusted share earnings will rise 6%, to $4.30, which is right in the middle of P&G's guidance of a 5%-7% gain. The EBITDA margin should get some more help from ongoing cost-reduction and productivity-improvement efforts.
Investors reacted favorably to the news, driving PG shares modestly higher in response. The stock continues to trade just below its 52-week high. We like this high-quality offering for its excellent stability and solid dividend yield (3.0%), but the blue chip's longer-term capital appreciation potential remains somewhat unexciting.
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 for 37% of total revenues in fiscal 2012, while Wal-Mart Stores (WMT – Free Wal-Mart Stock Report) accounted for 15%.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.