What To Expect From Procter & Gamble’s Q4

by Trefis Team
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Procter & Gamble
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Procter & Gamble (NYSE: PG) is scheduled to announce its fiscal fourth quarter results on Friday, October 19. The company’s revenue and earnings per share came in ahead of market expectations in its fiscal third quarter earnings. In Q3, the company’s net sales grew 4% year-over-year (y-o-y) to $16.2 billion, driven by growth in the Beauty, Fabric & Health Care segments, partially offset by flattish growth in the Baby and Feminine Care businesses. Overall, the company’s organic sales were up 1% on 2% volume growth, with a 2% decrease in pricing and 1% growth in mix across all segments. In terms of bottom lime, P&G’s core EPS (adjusted) also grew 4% y-o-y to $1.00, primarily driven by increased net sales, partially offset by a reduction in operating margin due to reinvestments and gains on the sale of real estate in the base period.

Procter & Gamble’s stock price has declined more than 10% over the course of 2018, due to falling prices and rising cost inflation. Our $83 price estimate for Procter & Gamble’s stock is slightly ahead of the current market price. We have created an interactive dashboard on what to expect from Procter & Gamble’s fiscal Q4, which outlines our forecasts for the company. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

Q4 Expectations

In Q4, 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 Q4. We also estimate flattish trends in the Grooming segment in Q4 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.

We expect the company’s SG&A costs to be around $4.6 billion in Q4, up 2% year-over-year (y-o-y). This is based on our assumption of growth in productivity savings from the combination of reduced overhead, agency fees, and ad production costs. We also expect the company’s adjusted gross profit margin to decline nearly 10% y-o-y in Q4, on the back of rising delivery costs. Based on these adjustments, we expect P&G’s adjusted operating income to decline almost in mid-double-digits to about $3 billion for Q4 2018. Overall, these adjustments resulted in a flattish growth in our adjusted net income forecast for the company, translating into adjusted EPS of $1.04

Fiscal 2018 Outlook

P&G expects its organic sales growth to fall in the low end of the 2% to 3% guidance range in fiscal 2018. It also expects total revenues to reach $67 billion in the same period. In terms of the bottom line, the company continues to expect its core earnings per share growth to be in the 6% to 8% range, as compared to the previous 5% to 8% range.

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