(PG) Procter & Gamble Results Come Up Short on Charges

Procter & Gamble Co.(PG) reported modest results for the second quarter 2012, with net earnings from continuing operations sliding 49.0% year over year to 57 cents a share, which missed the Zacks Consensus Estimate by 47.22%. Profits were limited due to non-core charges of 53 cents per share including a one-time 50 cents per share non-cash impairment charge associated with the Appliances and Salon Professional businesses.

Procter & Gamble forecasts third-quarter 2012 net earnings from continuing operations and core earnings to be in the range of 91 cents to 97 cents per share, down negative 5% to up positive 1% versus a base period Core EPS of 96 cents. The Zacks Consensus Estimate for the second quarter is expected to be $1.05 per share.

For second half of 2012, diluted net earnings per share from continuing operations and Core EPS are expected to increase 4%-9%.

Revenue and Margins

P&G’s net sales increased 4% to $22,135 billion in the second-quarter 2012. Excluding the impact of acquisitions, divestitures and foreign exchange, organic sales grew 4% in the reported quarter. P&G’s net sales marginally missed the Zacks Consensus Estimate of $22,172.0 million.

Baby Care and Family Care segment led the net sales growth and advanced 6% to $4.2 billion. Fabric Care and Home Care segment’s net sales moved up 5% year over year to $6.6 billion.

Volume was up 1%, fuelled by initiatives and continued market expansions. High-single-digit growth in developing regions was partially offset by a mid-single-digit decrease in developed regions.  For the quarter, volume growth was broad-based and was led by double-digit growth in Prestige Products. However, competitive activity in North America dragged the Olay volume down. Additionally, it declined due to a decrease in customer inventories in CEEMEA (Central Eastern Europe Middle East & Africa) region, which was a result of strong shipments in the October-December quarter.

Procter & Gamble, the leading manufacturer and seller of consumer goods, projects organic sales to inflate 4%–5%, backed by continued benefit from pricing, partially offset by unfavorable mix of 1%-2% in the fiscal year 2012. For third quarter 2012, net sales are expected to remain in line while organic sales are expected to grow by 3%-5%.

Gross margin for the quarter declined 210 basis points, higher commodity costs, partially offset by pricing and manufacturing cost savings.

Operating margin slipped 160 basis points due to lower gross margin and higher selling, general and administrative expenses (SG&A) as a percentage of net sales.

Procter & Gamble exited the quarter with cash and cash equivalents of $2,768 million and long-term debt increased by $1,990 million.


We are encouraged by the company’s expansion of its portfolio of brands, both through internal development and acquisition. However, Procter and Gamble is currently facing high commodity cost inflation and severe competition from companies like Kimberly-Clark Corporation (KMB) and Johnson & Johnson (JNJ) in the Western European markets in both the blade and battery businesses.

P&G holds a Zacks #3 Rank, translating into a short-term Hold rating.

JOHNSON & JOHNS (JNJ): Free Stock Analysis Report

KIMBERLY CLARK (KMB): Free Stock Analysis Report

PROCTER & GAMBL (PG): Free Stock Analysis Report

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