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PROCTER & GAMBLE: SUMMARY OF EARNINGS CALL FOR PERIOD July - Sept (JAS) 2016

| October 27, 2016
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P&G

P&G announced results from its JAS 16 quarter, delivering profit and sales ahead of Wall Street estimates. 

These results represent the first quarter of P&G’s 2017 fiscal year.  P&G saw organic sales growth of +3% behind shipment volume with organic sales and volume growth across all 5 operating segments.  P&G also saw growth in 9 of their 10 largest markets.  They have put a focus on balancing both top and bottom line growth, which is continuing to pay off.

Some key highlights for the quarter:

  • Organic Sales Growth – While ‘net’ sales growth was flat, ‘organic’ sales growth increased +3%. Organic sales growth takes net sales growth and excludes the impacts from foreign exchange and acquisitions and divestitures (A&D), which better defines growth generated within the company.  What continues to be favorable is that this quarter’s growth was yet again volume driven, not pricing/mix driven, and it occurred across all 5 reportable segments.  While organic growth was against a soft comp period (a comparison period in which sales were lower than expectations), importantly, organic sales growth was positive in both developed and developing regions.
  • Operating Segments – P&G is divided into 5 operating segments: Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine and Family Care. All 5 segments reported organic volume and organic sales growth for the quarter:

           

 These broad based organic numbers are important because the company has indicated their intentions of top line acceleration (growing sales) to fuel their profit growth and these    numbers help support those efforts.

  • Continued Cash Focus – P&G reiterated its cash friendly position with regards to shareholders. The company expects to pay out over $22 billion to investors this year in the form of dividends (>$7 billion), direct share buybacks (>$5 billion) and share buybacks through the Coty exchange (>$9 billion).  P&G returned $1.9 billion in dividends and $1 billion in direct share buybacks in this quarter.
  • Strategically Focused – P&G is now a 10-category company after the most recent round of brand divestitures. It is committed to competing in the 10 largest, most structurally attractive categories where P&G holds market leading positions.  Their focus is not just on growing their market share, but rather growing the market as a whole.  They are doing this while focusing on the balance sheet (inventory days, days payable, etc.) as well as the profit and loss (P&L) (net sales, gross margins, etc.).  They have also stated they will not compete in the lowest priced tiers where products are easily commoditized, but they will rather offer smaller pack sizes to cash strapped consumers, providing a win for the company and the end user.
  • FY17 Guidance – P&G is projecting organic sales growth of approximately 2% for fiscal year 2017. Category growth levels are expected to be ~3%, however, P&G has strong comparison periods coupled with an increased competitive environment which is largely why their forecast remains at 2%.  While there was no direct mention of A&D activity, P&G has said they would be open to acquisitions if the deal would fit their strategic vision.

As previously noted, P&G is in a transformation period.  With a relatively new CEO and one of the largest brand divestiture programs in the company’s 178 year history currently underway, it will take some time for all the moving parts to settle out.  Provided their efforts to grow the topline, reduce costs and remain a company that puts the needs and wants of the consumer first, the renewed focus and efforts they have underway should play out in their favor.

P&G is an example of the type of stock that we use to build The HCM Dividend Growth Portfolio™.  This portfolio provides the opportunity for appreciation that comes from equity exposure, while giving investors a growing stream of income through market cycles. 

If you want to walk through this together or just talk about P&G, feel free to reach out to me at jim@hengeholdcapital.com.

Date Posted: 10/27/2016 Advice provided in this article is meant for educational purposes only and financial education is important to us.  This article should not be taken as advice to buy, sell, or hold P&G stock. Before making decisions regarding your personal financial situation, please consult an advisor or conduct your own due diligence.  If you would like to discuss your P&G Retirement Income Plan with an HCM Wealth Advisor, please give us a call – 513-598-5120.  Located in Cincinnati, Ohio, we serve clients in 23 states, and we’d love to help.    

 

 

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