What To Expect From P&G’s Q3

Procter & Gamble (NYSE: PG) is scheduled to announce its fiscal third quarter results on Friday, April 2o. The company reported mixed fiscal second quarter earnings, as its revenue was in line and earnings per share came in ahead of market expectations. We have created an interactive dashboard for Procter & Gamble which outlines our forecasts for the company and our expectations for its Q3 earnings. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

Growth In Revenues, Earnings in Q3

In Q3, we expect Procter & Gamble to report growth in revenues on the back of growth across segments except for Baby, Feminine and Family Care. This is because we expect the rising competition from local players to negatively impact the Baby and Feminine Care segments in Q3. We also estimate flattish trends in the Grooming segment in Q3 despite the declining revenue trend, due to the rising popularity of its direct-to-customer model Gillette-On-Demand, which could offset some secular pressure from the likes of Dollar Shave Club. In terms of the bottom line, P&G continued to report solid earnings in the first half of fiscal 2018, and we expect this trend to extend into the fiscal third quarter as well. In addition, the trailing 90-day consumer demand index in the U.S. grew substantially in this quarter, which could provide a boost to the company’s earnings.

We expect the company’s SG&A costs to be around $4.2 billion in Q3, down 5% year-over-year (y-o-y). This is based on our assumption of growth in productivity savings from the combination of reduced overhead, agency fee and ad production costs. We also expect the company’s adjusted gross profit margin to decline in Q3, on the premise of rise in delivery costs. Based on these adjustments, we expect P&G’s adjusted operating income to decline slightly y-o-y to about $3.4 billion for Q3 2018. Overall, these adjustments resulted in a more than 5% jump in our adjusted net income forecast for the company.

Future Outlook

P&G continues to expect its organic sales growth to be in the range of 2% to 3% in fiscal 2018, despite the continued deceleration of market growth rates. It also expects all-in sales growth of around 3% for the same period. In terms of the bottom line, the company now expects its core earnings per share growth to be in the 5% to 8% range, as compared to the previous forecast of 5% t0 7%, reflecting the benefits from the Tax Act.

Our $93 price estimate for Procter & Gamble’s stock is more than 15% ahead of the current market price.

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