P&G Q4 Earnings Beat, Sales Miss On Currency Woes
The Procter & Gamble Company’s (PG - Analyst Report) earnings exceeded expectations while revenues fell short in both fourth-quarter and fiscal 2015. The consumer goods giant issued its fiscal 2016 guidance.
P&G’s fourth-quarter adjusted earnings of $1 per share beat the Zacks Consensus Estimate of 94 cents by 6.4% and increased 8% from the prior-year period. Excluding currency headwinds of 13 cents, earnings per share increased 22% on the back of pricing gains and productivity savings.
Adjusted earnings in the current quarter included a 9-cent per share benefit from minor brand divestiture gains.
The Procter & Gamble Company - Earnings Surprise | FindTheBest
Quarterly Discussion
P&G’s net sales declined 9% to $17.79 billion in the fourth quarter. The top line missed the Zacks Consensus Estimate of $18.06 billion by 1.5%. As expected, currency headwinds hurt sales by 9%. We would like to remind investors that this is the sixth consecutive time that P&G has missed sales due to currency headwinds and sluggish sales in the Beauty, Hair and Personal Care businesses.
Organically (excluding the impact of acquisitions, divestitures and foreign exchange), revenues remained flat, as pricing gains made up for softer volumes. Pricing increased sales by 3%, offsetting a volume decline of 3%. Product mix had a neutral impact.
Core gross margin improved 110 basis points (bps) to 49.1% as productivity cost savings and pricing benefits were offset by currency headwinds, higher commodity costs, investments in innovation and capacity building and unfavorable geographic/product mix.
Core selling, general and administrative expenses (SG&A) increased 10 bps (as a percentage of sales) to 31% as productivity savings were offset by currency headwinds and organization capability investments. Core operating margin increased 90 bps to 18.1%, owing to higher gross margin and productivity savings.
Fiscal 2015 Details
In fiscal 2015, adjusted earnings of $4.02 per share exceeded the Zacks Consensus Estimate of $3.97 by 1.3%. However, earnings declined 2% year over year due to currency headwinds. Excluding currency headwinds of 53 cents, earnings per share increased 11%. During the third quarter conference call, the company anticipated core earnings per share to be flat or decline in a low single digit range in fiscal 2015.
P&G’s net sales declined 5% to $76.279 billion in fiscal 2015, in-line with management’s expectation of a decline of 5%-6%. The top line also missed the Zacks Consensus Estimate of $76.554 billion by 0.4%. Currency headwinds hurt sales by 6%, in-line with management’s expectation of a decline of 6%-7%.
Organic revenues grew 1%, as a 2% pricing benefit more than offset a 1% reduction in shipment volume. While organic sales at the Grooming, Health Care, Fabric Care and Home Care, Baby, Feminine and Family Care segments improved from the year-ago quarter; Beauty, Hair and Personal Care businesses continued to slowed down in fiscal 2015.
Fiscal 2016 Guidance
The Cincinnati-based company expects net revenue to decline in low-to-mid single digits range in fiscal 2016, against 5% sales decline in fiscal 2015. Currency is expected to hurt revenues by approximately 5%. Organic sales are now expected to be in-line to up low single digits for fiscal 2016, as against 1% organic sales growth in fiscal 2015.
The company continues to expect core earnings per share to be down slightly to up mid-single digits in fiscal 2016, as against fiscal 2015 restated core EPS of $3.77. Management predicts currency to hurt core earnings per share by around 3%-4%.
We note that P&G announced the planned exit of several Beauty categories on Jul 9, 2015, which will be considered as discontinued operations. Accordingly, the company will restate its figures for fiscal 2015 to report the earnings from the Beauty categories. P&G stated that it expects fiscal year 2015 core EPS, which is based on earnings from continuing operations, to be restated from $4.02 reported above to approximately $3.77 per share.
P&G is in the process of divesting around 100 underperforming brands to concentrate better on fewer core strategic brands. In this regard, the company sold off its American and Asian pet care business to Mars, Inc. and European pet care business to Spectrum Brands Holdings, Inc. (SPB - Snapshot Report) last year.
Moreover, the company has signed a deal to divest its Duracell batteries business to Berkshire Hathaway, Inc. (BRK-B - Analyst Report) in exchange for Berkshire’s equity stake in P&G. In addition, the company has exited the Bleach business, Vicks VapoStream, Camay and Zest bar soap brands, and several skin care and fragrance brands. Camay and Zest soap brands were sold to U.K.-based consumer goods giant Unilever, plc (UL - Analyst Report) in December last year.
However, these structural changes and other initiatives to boost organic growth are yet to translate into top-line improvement.
P&G carries a Zacks Rank #3 (Hold).
Disclosure: None.