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Will New Products Lift Procter & Gamble's (PG) Q2 Sales?

Zacks Equity Research

The Procter & Gamble Company PG is set to report second-quarter fiscal 2018 results on Jan 23, before market open. This consumer goods company has been struggling to boost sales for the last few years. Weak volumes and slowing market share growth have been hurting its sales. Soft consumer-spending environment in developed markets, particularly in the United States and the United Kingdom, also adds to the worries.

The company’s total sales grew only 1% in the first quarter. The improvement during the last reported quarter was due to higher shipment volumes. However, lower pricing had a negative impact on sales. Organic sales grew 1%, softer than 2% growth in the prior quarter.

Nonetheless, this $65-billion conglomerate remains focused on balanced growth through improved product, packaging, and marketing initiatives in order to boost sales.

Resultantly, Procter & Gamble’s shares have gained 3.2% in the last six months, compared with the industry’s growth of 1.2%.

Let’s see how the company's top line is shaping up for this earnings season.

Although the company has refrained from providing any quarter-specific sales guidance, the company’s management remains positive and expects new product launches to improve sales in fiscal 2018. Its innovation-led products like premium Olay and SK-II products are creating higher demand and the trend is likely to follow in the to-be-reported quarter as well. Procter & Gamble anticipates 3% growth in sales for the year. Organic sales are expected in the range of 2-3%.

Segment Discussion: The Fabric Care and Home Care segment (accounting for 33% of the total sales) is likely to witness 1.9% sequential and 4.1% year-over-year growth to $5.5 billion per the Zacks Consensus Estimate, banking on improvement in both Fabric Care and Home Care divisions.

The company’s Baby, Feminine and Family Care segment (accounting for 27% of its total sales) revenues of $4.8 billion is expected to grow 2.6% year over year and 4.9% sequentially in the second quarter, per the Zacks Consensus Estimate. The company remains upbeat about China Baby Care sales this fiscal year and expects Pampers to return to share growth, marking a significant turnaround. Again, premium innovations like Whisper Infinity and Radiant is likely to drive Family Care organic sales.

The company’s Beauty segment (19% of total sales) revenues of $3.1 billion is expected to decline 2.1% sequentially but witness 4.5% growth year over year, banking on improvements in Skin & Personal Care, owing to continued growth across PG’s “superpremium” SK-II skincare brand in China.

Again, the consensus estimate for Health Care (11%) segment revenues of $2.1 billion are likely to increase 11.6% sequentially and 2.5% year over year. On the other hand, consensus estimate for Grooming segment (10% of total sales) revenues of $1.7 billion indicates an increase of 10.7% from the prior quarter but a decline of 2.4% on a year-over-year basis. Aggressive competitive activity, changes in grooming fashions and habits, and increasing online competitors in some markets like the United States are hurting the performance of the grooming segment.

Overall, for the fiscal second quarter, the Zacks Consensus Estimate for total revenues is pegged at $17.34 billion, reflecting a sequential growth of 4.1%. Revenues of this Zacks Rank #3 (Hold) company are likely to increase 2.9% year-over-year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The soft category growth rate in developed countries and higher competition in the United States like Dollar Shave Club and Harry’s Razor in the male grooming category is likely to hurt the company’s razors and blades’ sales. Again, lower pricing owing to increased competition in the shave care category and higher commodity costs are added woes. That said, new product launches are likely to offset the negatives.

Procter & Gamble Company (The) Revenue (TTM)


Procter & Gamble Company (The) Revenue (TTM) | Procter & Gamble Company (The) Quote

Stocks to Consider

A few better-ranked stocks from the same sector are Church & Dwight Company, Inc. CHD, The Clorox Company CLX and Colgate-Palmolive Company CL, each carrying a Zacks Rank #2 (Buy).

Church & Dwight is expected to register 11.5% EPS growth in 2018.

Clorox has an expected EPS grow rate of 6.5% for this fiscal year.

Colgate-Palmolive projects earnings growth of 8.6% for 2018.

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Procter & Gamble Company (The) (PG) : Free Stock Analysis Report
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