OK, maybe Procter & Gamble (NYSE:PG) isn’t as dead-in-the-water as many investors were assuming. After a lackluster performance so far this year, PG stock surged 8% on Friday following an impressive fiscal-first-quarter report. Earnings as well as revenue were better than projected.
One solid quarter doesn’t necessarily make PG stock a buy, particularly after a big surge that will almost certainly invite some profit-taking … particularly with the gap left behind in the process.
Nevertheless, one good quarter is enough to justify putting PG stock back on watchlists. Several quarters of restructuring, revamping and rethinking may finally start to pay off.
Procter & Gamble Earnings Recap
For the quarter ending in September, Procter & Gamble turned $16.7 billion worth of revenue into a per-share profit of $1.12. Sales were up just a bit from the comparable quarter a year earlier, while earnings were up markedly from the $1.06 per share of PG stock booked for the first quarter of fiscal 2018. More important, last quarter’s results topped expectations for sales of $16.445 billion and income of $1.09.
The company’s beauty products were the bright spot, boasting organic growth of 7%. Fabric and homecare revenue was up 5%, organically, while grooming and healthcare product sales saw organic growth of 4% each.
The only weak area was baby, feminine and family care, where organic sales fell 1%.
CFO Jon Moeller commented on the Q1 results “we feel very good about the quality of the top-line growth in the quarter and the quality of the number that we are reporting,” adding “We feel good about that for several reasons … the breadth of the growth is encouraging, with nine of 10 categories growing sales in the quarter.”
Hope for the Company
Once this monolith could use its size to leverage its products onto store shelves, but Procter & Gamble has found that size to be something of a liability in the era of e-commerce and a growing consumer preference for more choice.
CEO David Taylor has been making that adaptation since coming on board as the chief executive in 2015.
A great number of his initiatives have been culling brands that weren’t quite a good fit for Procter & Gamble’s portfolio. Clairol, Covergirl and a handful of other beauty names that were part of the P&G family, for instance, were sold to rival Coty (NYSE:COTY). In the meantime, Procter & Gamble added Merck KGaA’s consumer health business to its mix earlier this year.
It’s not just a reconfigured product mix Taylor has prompted though. P&G has rethought how it advertises as well. Earlier this year the company unveiled a brand new marketing mantra that focuses more on data and less on what chief brand officer Marc Pritchard refers to as “project management.” He suggested “less project management and more true brand entrepreneurship” was the new mindset.
Though these and other efforts may have taken a while to make an impact, last quarter’s report suggests they may finally be mattering.
Looking Ahead for PG Stock
One quarter does not make a trend, but all trends start with one pivotal quarter. Doubters remain. If the company can dish out another progressive quarter, however, the bearish argument holds much less water.
To that end, Procter & Gamble reaffirmed its 2019 expectations for organic sales growth of 2% to 3%. Total sales are expected to be down by a similar degree, but only to reflect divestitures that will ultimately make the company more profitable. P&G is looking for core earnings growth of between 3% and 8%, given currency headwinds, but core earnings growth of between 11% and 16% when stripping away the adverse impact of currency fluctuation.
For the quarter now underway, analysts are modeling a profit of $1.19 per share of PG stock, in-line with the previous year’s first quarter profit. Sales are expected to fall 1.7% year-over-year, but that decline is only the result of divestitures. On an organic basis, revenue should rise again.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.