Last Friday, Procter & Gamble’s shares increased 7% after the company said their beauty products drive their revenue growth higher than what the company expected. In fact, the management reported they gained the strongest quarterly sales this quarter in the last five years. Aside from that, P&G has maintained its positive profit outlook for the year 2018.
The Turnaround
In recent quarters, Procter & Gamble has struggled to maintain its sales growth as the demand for household brands like Pampers for diapers and others has waned. Despite this, P&G reiterated they had sold a higher volume of consumer goods in the last quarter thanks to the U.S. healthy economy as well as the new product innovation P&G has been developing for the past few months.
Prior to the biggest gain last Friday, P&G’s shares plummeted to 11% so far this year, yielding the company’s market cap at $202 billion.
However, P&G’s stocks increased more than 7% in the morning trading since the company’s announcement of higher quarter sales growth last Friday, landing on the top spot on the S&P 500 Consumer Staples Index.
The said shares trade achieved its biggest gain for the last five years. A survey of analysts on Refinitiv also noted how P&G’s latest report surpassed Wall Street‘s expectations namely:
- P&G’s actual earnings per share reached up to $1.12 (adjusted) compared to Wall Street’s $1.09 forecast.
- The revenue increased to an astounding $16.69 billion, compared to $16.46 expected revenue.
P&G’s CEO David Taylor says the latest report helps them keep on track to deliver the company’s top and bottom-line targets for the fiscal year.
The Sales Growth
As of September 30, P&G’s net income also increased 12% at $3.20 billion, or equivalent to $1.22 cents per share compared to $1.06 cents a share at $2.85 billion in 2017. Except for the one-time items, the company earned $1.12 a share, beating the analysts’ consensus by 3 cents ahead.
The Sales also climbed to $16.69 billion compared to $16.65 billion in 2017, beating the projected $16.46 billion anticipated by the analysts. The organic sales growth also offset the impacts of currency exchange and other adjustments by 4%. The 1.6% increase in P&G’s sales is reportedly fueled by its beauty’s division growth.
According to CFO Jon Moeller, the beauty industry continues growing as the demand from beauty shoppers increase, so it’s only fitting for their beauty division’s sales to grow tremendously too.
He adds their beauty net sales increased 5% during the last quarter, while their largest unit – the fabric and home-care division also climbing by 2%. These helped offset their net declines in other divisions like the 1% fall in the grooming category, 3% fall in healthcare, and 3% decline in the baby, family and feminine care. Overall, P&G net sales still showed a positive outlook in the recent quarter.
The Struggle in Other Brands
Despite the positive sales outlook, P&G is still struggling in other everyday household goods like Crest Toothpaste, Charmin toilet paper, and Tide laundry detergent to defend its market shares and sales against the heightened competition of private-label brands like Brandless, Harry’s, and Dollar Shave Club.
Moeller told the analysts the company may need to raise its prices in the coming quarters to cover up the cost pressures they experienced. He adds even its Gillette razor brand has struggled against new entrants and startup companies.
But as of this quarter, the prices are still overall neutral. Despite these struggles, Moeller is positive the company is still expecting revenue progress and growth in the coming years. According to him, P&G expects its organic sales growth to increase by 2-3% further for fiscal 2019.
They also expect the company’s core earnings per share to increase from 3-8% at $4.22 from their 2018 core earnings.