Consumer goods manufacturer Procter & Gamble Co. (PG) will report its second quarter earnings results on, January 27, before the market opens. The commodity price rise and gross margin as well as operating margins will hold key to its performance. The results will have the effects of its joint venture with Teva and sale of Pringles.
Though the company has showed improvement in its gross margin as well as operating margin sequentially, the year-over-year fall could upset the growth prospects.
Expectations
In November, Procter & Gamble disclosed that it see earnings of $1.00 - $1.11 a share, including 0 – 5 cents share for restructuring charges, on sales growth of 3 – 5 percent.
Wall Street analysts are estimating the Cincinnati, Ohio-based company to earn $1.08 a share on revenues of $22.19 billion for the second quarter. This represents earnings fall of 4.4 percent on revenue growth of 4 percent.
First Quarter Results
Procter & Gamble reported net earnings of $3.02 billion, down from $3.08 billion but earnings rose to $1.03 a share from $1.02 a share in the year earlier quarter. Net sales grew 9 percent to $21.92 billion from $20.12 billion in the previous year quarter.
Street analysts were estimating the company to earn $1.03 a share on revenues of $21.55 billion.
On year-on-year basis, gross margin slipped to 49.5 percent from 51.8 percent, while operating margin drifted to 19.8 percent from 22.4 percent. On a sequential basis, gross margin and operating margin improved from 48.3 percent and 15.7 percent respectively.
Analyst Take
On January 23, Stifel Nicolaus downgraded P&G shares to Hold from Buy. While 8 analysts are recommending Strong Buy in the current month, 11 analysts have Buy rating on the stock with 4 analysts recommending Hold. Significantly, no analysts have recommended Sell.
Earnings History
In the past four quarters, the company's earnings topped analysts' estimations twice and met with expectations once, while the remaining one quarter failed to meet predictions. P&G earned $1.03 a share, $$0.84 a share, $0.96 a share and $1.13 a share in the first quarter of current fiscal and preceding three quarters of last year.
On the revenue side, the company generated revenues of $21.92 billion, $20.86 billion, $20.23 billion and $21.35 billion for the first quarter of latest fiscal and preceding three quarters of previous year.
Versus Others In The Industry
Procter & Gamble's gross margin for the trailing twelve-month period is 50.04 percent compared to industry average of 47.91 percent and Johnson & Johnson's 68.99 percent. Similarly, operating margin of 18.55 percent is weaker than J&J's 25.42 percent but better than industry average of 10.25 percent.
Interestingly, Colgate-Palmolive (CL) reported adjusted net income of $630 million, up 1 percent from $624 million and earnings grew 4.8 percent to $1.30 a share from $1.24 a share in the year-ago quarter. Revenues increased 4.8 percent to $4.17 billion from $3.98 billion in the previous year quarter. Gross margin slipped to 57.4 percent from 59.1 percent, while operating profit margin slipped to 22.1 percent from 22.8 percent in the year earlier quarter indicating higher commodity prices impacting unfavorably.
iStock Punch
The results of Colgate-Palmolive is giving the impression that commodity prices may hurt P&G results too, but how much remains to be seen. Though it is an industry phenomenon, P&G should have taken steps to limit the damage so as to meet its own earnings target. One can take a call on seeing the results.
