Procter & Gamble Catches a Q1 Break

by Alyssa Oursler | October 25, 2012 2:30 pm

Procter & Gamble Catches a Q1 Break

Finally, a reason to smile at Procter & Gamble (NYSE:PG[1]).

The world’s largest household product maker, which recently has been under fire from activist investor Bill Ackman[2], got a nice 3% boost today on the heels of its fiscal first-quarter earnings report, pushing PG shares up 20% from July lows to a four-year high.

Earnings for the company dipped 7% to $2.8 billion[3], and revenues — weighed down by a strong U.S. dollar — also fell around 4% to $20.74 billion. However, backing out various charges, adjusted earnings of $1.06 per share were up 5% year-over-year and were 10 cents better than the low bar set by Wall Street.

There were other sprinkles of good news throughout the report. PG reported that it held or grew market share in over 45% of its businesses — up from 30% last quarter — for example. In the U.S., that number was even better, quadrupling from 15% to 60%.

But the U.S. isn’t where growth is — and growth is where Procter & Gamble is left wanting.

The company has been a laggard when it comes to snatching up emerging-market share, with rival Unilever (NYSE:UL[4]) leading the way.

Unilever gets more than half its sales in developing countries — where there is the most room for growth — and saw a 12% gain in those markets last quarter[5]. Procter & Gamble, on the other hand, only gets around 30% of its sales in those economies and admitted that it has struggled with pricing and balancing growth overseas.

Admitting those mistakes is a step, I guess, but Procter & Gamble didn’t really have a choice considering Ackman has forced such acknowledgement through his vocal criticism of the company’s focus and management. Actually improving upon those mistakes? That’s a whole different story.

The only slight sign of potential future growth came from the company’s plan to ramp up marketing for new products[6] this year, but that’s hardly anything for investors to latch onto — and it came at a price. Marketing, along with costs from a plant explosion, was the justification behind Procter & Gamble’s move to not raise its full-year profit forecast, which currently sits in a range of $3.80 to $4.

Instead, the emphasis at P&G is on cost-cutting and restructuring. Back in May, the company decided to renew its focus by narrowing in on its 40 top businesses, 20 biggest products and 10 most profitable emerging markets. It also announced a $10 billion money-saving plan and said it would trim its work force earlier in the year.

Not necessarily bad things, but the company sure seems to be back on its heels.

Of course, Procter & Gamble stock still has is its usual selling point as a great long-term defensive buy — which, I grant you, is an appealing one. PG currently yields a healthy 3.3% in dividends, and the company has been making payments for more than a century, so that’s as rock-solid as you can ask for.

Plus, there’s the long-lived argument for consumer staples: People will always need them.[7]

Still, while Procter & Gamble was able to beat low expectations and keeps cutting costs, those things are hardly reasons to bring out your inner bull. While P&G might be a solid long-term play, the time for buying isn’t now.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.

Endnotes:
  1. PG: http://studio-5.financialcontent.com/investplace/quote?Symbol=PG
  2. activist investor Bill Ackman: http://investorplace.com/2012/10/can-ackman-or-anyone-fix-pg/
  3. dipped 7% to $2.8 billion: http://www.businessweek.com/ap/2012-10-25/procter-and-gamble-1q-net-income-dips
  4. UL: http://studio-5.financialcontent.com/investplace/quote?Symbol=UL
  5. 12% gain in those markets last quarter: http://online.wsj.com/article/SB10001424052970203897404578077891474034404.html
  6. ramp up marketing for new products: http://money.msn.com/business-news/article.aspx?feed=OBR&date=20121025&id=15715107
  7. People will always need them.: http://slant.investorplace.com/2012/10/consumer-staples-stocks-ko-kmb-gis/

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