Procter & Gamble’s (NYSE: PG) Q3 earnings per share and revenues both beat consensus estimates in its recent results. In fiscal Q3, the company’s net sales grew slightly year-over-year (y-o-y) to $16.5 billion, which included a 5% negative impact from foreign exchange. Moreover, P&G’s organic sales were up 5% y-o-y on 2% volume growth, 1% growth in the mix across segments and 2% pricing growth, excluding the impacts of foreign exchange, acquisitions, and divestitures. In terms of the bottom line, P&G’s core EPS (adjusted) also grew 6% y-o-y to $1.06, primarily driven by a reduction in shares outstanding.
We have a $98 price estimate for P&G’s stock, which is slightly below the current market price. We have created an interactive dashboard on What Has Driven P&G’s Recent Results? which outlines our forecasts for the company’s Q4 and full-year fiscal 2019 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation and see more Trefis Consumer Staple data here.
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In Q4, we expect Procter & Gamble to report slight revenue growth, driven by continued growth in Beauty and Health Care revenues, partially offset by declines across segments – Grooming and Baby, Feminine, and Family Care. We continue to expect the rising competition from local players to negatively impact the revenue in the Baby, Feminine, and Family Care segments in Q4. We also expect the Grooming segment to continue its declining revenue trend, due to secular pressure from the likes of Dollar Shave Club. However, the rising popularity of its direct-to-customer model Gillette-On-Demand could offset some of this pressure.
In Q4, we expect the company’s SG&A costs to be around $4.9 billion, up 8% 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 grow marginally in Q4. Based on these adjustments, we expect P&G’s adjusted operating income to decline almost 6% y-o-y to about $2.8 billion for Q4 2019. Overall, these adjustments resulted in a more than 10% y-o-y decline in our adjusted net income forecast for the company, translating into adjusted EPS of $0.89.
Fiscal 2019 Outlook
- P&G maintains its full-year fiscal organic sales growth outlook to 2% to 4%, driven by the strong momentum of its organic sales in the first nine months of fiscal 2019.
- It also expects total revenues to be in the range of flat to 1% y-o-y, compared to previous guidance of down 1% to up 1%. In terms of the bottom line, the company reaffirms its expectation of core earnings per share growth to be in the 3% to 8% range.
- In addition, pricing could remain positive in Q4, but this could increase volume uncertainty and volatility. Further, macro uncertainty stemming from issues like Brexit and a crisis of consumer confidence in France could also impact both the top and bottom line for the full year.
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