Procter & Gamble Q2 Earnings Preview: Tough Competition and Weak Macros to Pose Difficulties

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Procter & Gamble

The consumer industry giant Procter & Gamble (NYSE:PG) is set to release its fiscal Q4’16 earnings on August 2nd. (Fiscal year end with June.)  For the June quarter, Procter & Gamble is expected to report lower net sales as compared to the same period last year because of the continued currency translation effects evident across the industry. Macroeconomic conditions continue to be unfavorable as growth has slowed in China and a number of  emerging markets. In addition, the company’s major business segments of baby care and men’s grooming are facing a fierce competition from Kimberly Clark and Unilever respectively. Kimberly Clark has recently turned to competitive pricing and innovation in baby pull-up pants resulting in a dent to sales of P&G’s Pampers and Luvs diapers in certain regions of the world. Similarly Unilever is acquiring Dollar Shave Club in a billion dollar deal to step up its competition against P&G’s Gillette.

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P&G Lowers its Expectations for Q4’16 and FY’16

In its previous earnings call, P&G lowered its market growth expectations from 3-4% at start of the year to 3% by the end of FY’16 due to tough macro-economic conditions worldwide. The company experienced a slow 1% growth in organic sales in Q3’16 and suffered a 7% decrease in reported sales, primarily due to currency effects and economic problems in Venezuela. The fact that the company is relying heavily on cost cutting and selling off its non performing brands to keep the bottom-line intact is not a positive sign, as it shows that growth in its established brands have not been able to offset the losing wings.

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P&G(final)P&G’s Guidance for Q4’16 

  • The company expects that its non operating income will be lowered by $100 million in Q4.
  • The tax rate for the Q4 is estimated to be around 8% higher as compared to the previous year.
  • P&G has guided to an increase in its R&D and selling expenses signalling that it is trying hard to recover its lost market share through innovations and better marketing.
  • There can be a significant Forex impact due to strengthening of US dollar between March and June. The company is expecting that currency can reduce its FY’16 net earnings by $1 bllion compared to the last year.

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