Procter & Gamble Co (NYSE:PG) is scheduled to announce its fiscal Q3 earnings on Thursday, and you can expect the numbers to be down from a year ago. PG has large exposure to overseas markets — more than 60% of its sales for fiscal 2014 were generated outside North America — and it has been hurt by the powerful U.S. dollar.
To no one’s surprise this year, large multinational corporations are seeing their earnings affected by the strong dollar. Over the past year, the dollar’s value has strengthened against a host of emerging markets currencies and the euro.
It throws a wrench into comparing this year’s numbers with those of the prior year. If numbers are down, is it just a case of currency headwinds or is there a more troubling underlying problem with how that company is going about doing their business?
For PG stock, analysts are forecasting earnings of 93 cents per share and revenue of $18.4 billion — well below the $1.04 per earnings and $20.6 billion in revenue from a year ago. The forecast seems eerily similar to the fiscal Q2 actual numbers, which saw a decline of 4% due to currency exchange impacts.
One means to determine actual growth would be to take a look at organic growth because it strips away currency impact. For the last three quarters that number has been around a sluggish 2%. Keep in mind that PG does most of its business abroad, where Europe is facing a deflationary environment and there is soft demand in emerging markets.
As PG president and CEO A.G. Lafley said last year:
“We’re operating in a slow-growth, highly competitive environment, which places even greater importance on strong innovation and productivity improvement.”
Procter & Gamble is a company of strong name brands. However, when the majority of your market is going through some macroeconomic hardships, generic brands and private labels may be a better fit for their budgets. It will be interesting to hear about any new innovations or improvements.
Expectations for PG Earnings
In August of last year, Procter & Gamble announced that it would sell or dispose of as many as 100 brands in order to focus on their true money-generating names, such as Pampers and Gillette. Nearly 95% of profits and 90% of sales come from around 80 brands.
As of February, 35 of those brands were eliminated, sold or earmarked for divestment. The deals to dispose of the remaining brands are scheduled to be completed by the end of the summer. Analysts and investors should expect an update in the earnings report.
And some details would be nice. There was full disclosure surrounding the $4.7 billion sale of Duracell to Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) last November. However, we don’t know all the details of the sale of Zest and Camay soap brands to Unilever PLC (ADR) (NYSE:UL).
One would expect revenue to initially fall as you lose each brand’s sales. But what have you gained in margins and how do you plan to reallocate those resources to the 80 brands you keep?
Positive feedback could go a long way in creating a boost for PG stock going forward.
As of this writing, Jason Jenkins did not hold a position in any of the aforementioned securities.
