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Procter & Gamble's Earnings Surpass Estimates, but Revenue Misses Out

Procter & Gamble (NYSE:PG) released its first-quarter results on Jan. 23 before market open.

While the company surpassed Wall Street's bottom line expectations, revenue lagged. The company cited the stronger dollar as well as poor performance in the baby segment for the mixed results.

Despite the unsatisfactory quarterly results, the company has raised its outlook for 2020.

By the numbers

The consumer products giant recorded adjusted earnings of $1.42 per share, up 14% from the prior-year quarter. Net sales amounted to $18.2 billion, which reflected a gain of 5% on a year-over-year basis. Analysts had anticipated earnings of $1.37 on $18.37 billion in revenue.

Organic sales, barring the impact of foreign exchange, acquisitions and divestitures, soared 5% courtesy of stunning growth in the health care and beauty segments.

In a statement, CEO David Taylor said:

"We delivered another strong quarter of organic sales growth, core earnings per share and cash returned to shareowners. Our focus remains on executing our strategies of superiority, productivity, constructive disruption and improving P&G's organization and culture to deliver balanced top-line and bottom-line growth along with strong cash generation in a challenging competitive and macroeconomic environment."

Performance of business divisions

The beauty segment experienced 8% sales growth in the quarter, minus the impact of currency and acquisition. This was driven by robust demand for its super-premium SK-II brand and its Olay skin care products, as well as higher prices.

The grooming division witnessed a growth of 4% in organic sales. While organic sales of its appliances rose by high single digits as compared to the previous-year quarter, shave care organic sales improved by low single digits.

The health care segment saw organic sales growth of 7% year-over-year owing to product innovation and increased pricing, which improved results particularly in oral care and personal health care.

Baby care segment disappoints

The company's baby care segment witnessed organic sales decline by low-single digits. P&G cited increased competition, fall in the number of customers purchasing baby products like pampers in certain markets and an inventory decrease in Japan for the decline. A fall in the Chinese birth rate is also a big factor surrounding the segment's poor growth, given China is one of P&G's largest markets.

To compensate for the underperforming baby care segment, the company has shifted its focus towards offering an expensive range of products as well as focusing on other categories such as adult diapers and feminine care products.

In addition, the company said consumers showed interest in its latest developed pricier products such as specialty toothpaste and Tide Pod detergent packets. This has benefited the company, which is evident from the 1% rise seen in its price across its portfolio for the quarter.

Financial guidance

For the 2020 fiscal year, Procter and Gamble sees sales growth of 4% to 5%, which exceeds its prior guidance of 3% to 5%. The company projects core earnings per share growth of around 8% to 11%, which is more than its prior forecast of 5% to 10%.

The company said it would repurchase $7 billion to $8 billion worth of shares in fiscal 2020.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.