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Procter & Gamble (PG) Up 13% in 6 Months: What's Driving It?

Zacks Equity Research

The Procter & Gamble Company PG, popularly known as P&G, appears to be a preferred pick, driven by continued investments to aid business growth. The company is benefiting from ongoing initiatives to improve productivity. Moreover, it remains focused on product improvement as well as packaging and marketing initiatives, which drive top and bottom lines. Also, the company is on track with its cost-saving plans.

All these factors helped it deliver robust first-quarter fiscal 2020 results, wherein its earnings and sales beat estimates for the fifth straight time. Both the top and bottom lines grew year over year. Strong organic sales growth, backed by higher shipment volume and favorable price/mix, boosted the top line. Notably, all of the company’s segments contributed to organic sales growth. It raised the guidance for fiscal 2020. (Read: Procter & Gamble Stock Rises on Q1 Earnings & Sales Beat)

For fiscal 2020, the company projects all-in sales growth of 3-5% compared with 3-4% mentioned earlier. Moreover, it now projects core EPS growth of 5-10% for fiscal 2020 compared with 4-9% mentioned earlier. In fiscal 2019, the company reported core earnings of $4.52 per share.

Moreover, analysts are steadily growing bullish on the stock. This is visible from the upward revision in the Zacks Consensus Estimate. For fiscal 2020 and 2021, the Zacks Consensus Estimate has moved north by 8 cents each to $4.85 and $5.15, respectively, in the past 30 days.

Backed by these upsides, shares of this Cincinnati, OH-based company have rallied 13% in the past six months, outperforming the industry’s growth of 5.3%.




Let’s take a closer look at the aspects driving this Zacks Rank #2 (Buy) stock.

Factors Narrating Procter & Gamble’s Growth Story

P&G remains focused on productivity and cost-saving plans to boost margins. The company’s continued investment in business, alongside efforts to offset macro cost headwinds and balance top-line and bottom-line growth, underscore its productivity efforts. With cost savings and efficiency improvements across all facets of business, it has crossed the mid-point of the second five-year (fiscal 2017-2021) cost-savings target of $10 billion.

The second five-year restructuring plan targets cutting costs in areas including supply chain and cost of goods sold (COGS), marketing and digitization and promotional spend effectiveness. This plan comprises $7 billion in COGS savings ($4.5 billion from raw and packaging materials, $1.5 billion in manufacturing savings and $1 billion from transportation/warehousing/other); $2 billion of marketing cost reductions; $1.5 billion of trade spending savings (10% efficiency); and $1–$2 billion of additional overhead reductions.

Also, the company focuses on improving its product portfolio through initiatives, which enable it to concentrate on its fast-growing businesses. For this, the company relies on its strategy of acquiring complementary businesses. It also follows a systematic divestiture plan to streamline its portfolio. Notably, it has acquired a private company, This is L., that produces period products with natural ingredients. This will aid in expanding its naturals product range, which is a key focus area for most day-to-day consumer product companies at present.

Some other recent acquisitions include the beauty brand, First Aid Beauty, the consumer health business of Germany-based Merck KGaA and Walker & Company Brands, all in 2018. These buyouts should bolster the company’s product portfolio in various categories. Simultaneously, it divested several assets over the years as part of the portfolio-reshaping plan.

We anticipate all the aforementioned factors and its robust outlook to help the company remain in investors’ good books.

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