PG
The Procter & Gamble Company PG, also known as P&G, is set to report fourth-quarter fiscal 2024 results on Jul 30, before the opening bell. The company is expected to have witnessed sales growth in the to-be-reported quarter. The Zacks Consensus Estimate for fiscal fourth-quarter revenues is pegged at $20.7 billion, suggesting a 0.9% rise from the prior-year quarter’s reported figure. The consensus mark for PG’s fiscal fourth-quarter earnings is pegged at $1.37 per share, indicating flat results compared with that reported in the year-ago quarter. The consensus mark has been unchanged in the past 30 days. The Cincinnati, OH-based company has consistently delivered steady earnings, evidenced by its positive bottom-line surprise trend over the past seven quarters. PG has a trailing four-quarter earnings surprise of 6.5%, on average, including a 7% surprise in the most recent quarter. With this record, the question is whether PG can sustain this momentum. Procter & Gamble Company (The) Price and EPS Surprise Procter & Gamble Company (The) price-eps-surprise | Procter & Gamble Company (The) Quote
Earnings Whispers
Our proven model conclusively predicts an earnings beat for Procter & Gamble this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Procter & Gamble has a Zacks Rank #3 and an Earnings ESP of +0.64%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Essential Trends to Monitor as PG's Q4 Earnings Near
Procter & Gamble has been demonstrating its dominance in the global market by strategically leveraging its brand strength to drive organic sales growth. As a manufacturer of products catering to the daily needs of consumers worldwide, P&G's success in the preceding quarters can be attributed to its robust brand portfolio and effective business strategies. The persistence of these trends is expected to benefit the company’s organic sales for the fiscal fourth quarter.
PG’s organic sales for the fiscal fourth quarter are anticipated to have mainly benefited from strong pricing strategies, a favorable product mix and robust segmental performances.
Our model predicts P&G’s organic sales to increase 3.3% for the fourth quarter and 4.3% for fiscal 2024. Fourth-quarter organic sales are expected to rise 2% for Beauty, 8% for Grooming, 1% for Health Care, 4% for Fabric & Home Care, and 3% for the Baby, Feminine & Family Care segment. For fiscal 2024, we expect organic sales growth of 2.8% for Beauty, 9% for Grooming, 3.7% for Health Care, 5.5% for Fabric & Home Care, and 3.2% for the Baby, Feminine & Family Care segment.
P&G has been diligently pursuing cost-saving and productivity measures to drive margins and reinforce its competitive advantage. The company's commitment to enhancing productivity while mitigating macro cost headwinds has been integral to maintaining balanced top and bottom-line growth. Its focus on productivity and cost-saving plans are likely to have boosted margins in the to-be-reported quarter.
We expect P&G's core gross margin for the fiscal fourth quarter to have been influenced by significant productivity savings. Our model predicts a core gross margin expansion of 20 bps for the to-be-reported quarter and 330 bps for fiscal 2024.
However, Procter & Gamble’s outlook for fiscal 2024 reflects continued supply-chain issues, higher transportation costs, geopolitical challenges, currency headwinds and rising inflation, which are anticipated to have impacted consumer confidence.
On the last reported quarter’s earnings call, management indicated that PG was facing disruptions in its Greater China operations, wherein organic sales declined 10% year over year in the fiscal third quarter. This dip underscores ongoing economic weaknesses and specific challenges faced by brands like SK-II, which saw a substantial 30% drop in sales in the third quarter of fiscal 2024. These figures highlight the prolonged recovery needed in China's luxury skincare segment, posing a significant hurdle for PG's growth in this lucrative market.
Additionally, the company stated that emerging markets across the Asia Pacific, the Middle East and Africa exhibited soft volume trends. Countries like Egypt, Saudi Arabia, Turkey, Indonesia and Malaysia have been particularly affected by geopolitical tensions, which have dampened consumer spending and retail activities. PG's shipment volume in Russia declined notably, reflecting reduced market presence and constrained consumer budgets. We expect the persistence of these trends to have affected the company’s fourth-quarter and fiscal 2024 performances.
Further, adverse currency rates continue to be a headwind for PG due to its market presence across borders. On the last reported quarter’s call, management expected currency movements to negatively impact PG’s all-in sales growth by 1-2%. The company expects unfavorable currency rates to create a headwind of $600 million after tax. Most of this impact is likely to come from the volatility in Argentina’s exchange rates. This outlook is based on a forecast for continued significant devaluation of the Argentine peso, which is expected to offset price increases.
Our model estimates 2.5% and 1.6% impacts of currency headwinds in the fourth quarter and fiscal 2024, respectively.
Higher supply-chain costs, rising inflation and elevated transportation expenses have been leading to higher SG&A expenses for PG. We estimate SG&A expenses to increase 4% year over year for the fourth quarter and 9% for fiscal 2024. As a percentage of sales, SG&A expenses are expected to rise 80 bps for the fourth quarter and 160 bps for fiscal 2024.
Price Performance & Valuation
Procter & Gamble’s shares have exhibited an uptrend in the past year, rising 9.8%. The leading consumer goods company’s shares have outperformed the Zacks Consumer Staples sector’s decline of 4.3%. Meanwhile, the stock underperformed the industry’s growth of 10.3% and the S&P 500’s 20.1% rise.
The Procter & Gamble stock has rallied ahead of its key rivals Clorox CLX and Church & Dwight CHD, which fell 11.6% and rose 4.1%, respectively, in the same period. However, PG lagged Colgate-Palmolive’s CL growth of 25.1% in the past year.
At the current price of $166.90, PG trades close to its 52-week high of $170.92 attained on Jul 18. This represents a 2.4% discount to the 52-week high mark.
From the valuation standpoint, PG trades at a forward 12-month P/E multiple of 23.83X, exceeding the industry average of 22.94X and the S&P 500’s average of 21.17X. Procter & Gamble’s valuation appears quite pricey.
Given the premium valuation, investors could face significant risks if the company's future performance does not meet expectations. The consumer goods market is becoming increasingly competitive, and Procter & Gamble’s innovation and market expansion may not suffice to drive significant growth. Macroeconomic challenges and heightened competition could impede the company's ability to sustain its current growth trajectory.
Investment Thesis
Procter & Gamble operates a robust business model with a diverse portfolio of brands across home care, personal care and health care. With strong brand loyalty for products like Tide, Gillette, Pampers and Crest, PG commands premium pricing, maintains market share and effectively competes with rivals. Operating in more than 180 countries, the company enjoys a broad revenue base, benefiting from growth in emerging markets and steady income from developed regions. PG's focus on productivity and cost-saving measures, including the supply-chain 3.0 program, is expected to enhance margins despite inflation.
However, Procter & Gamble is experiencing challenges in key markets like Greater China and is dealing with geopolitical tensions in emerging regions. Additionally, currency volatility adds financial strain, with an anticipated $600-million after-tax impact from foreign exchange rate fluctuations for fiscal 2024. These factors highlight significant financial headwinds that could affect P&G's profitability and overall financial performance.
Conclusion
As Procter & Gamble gets ready to release its fourth-quarter fiscal 2024 earnings, positive factors like strong segmental performances, robust pricing, a favorable product mix and an emphasis on productivity and cost-saving measures are promising indicators. Simultaneously, investors will be keen to evaluate factors like challenges in Greater China, geopolitical tensions and currency impacts before making investment decisions.
While Procter & Gamble’s future appears promising, investors should avoid hasty decisions. Instead, monitoring developments to identify the ideal entry point should be an appropriate strategy, as rushing in could impact portfolio gains. If you already hold the PG stock, sit tight, as the upcoming earnings report is expected to reinforce the company's strong performance.
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