3 Things to Watch For in Procter & Gamble's Earnings

Procter & Gamble (NYSE: PG  ) is set to report earnings before the market opens on Friday. Here's what you need to watch for in the results.

Not great expectations
The first question that tends to dominate in the moments after earnings come out is whether the company met the Street's expectations. Analysts peg profits for the consumer-staples giant at $1.11 per share this quarter, on $21.9 billion of revenue.

But neither figure would be worth breaking out the champagne. After all, P&G booked $1.10 in the year-ago quarter, and so we're looking at profit growth of less than 1%. The company reported $22.1 billion in sales for last year's Q4, too. So expectations are for revenue to actually decline this year.

Organic sales growth
Back in October, P&G pounded the table on its sales growth forecast, saying that it believes it can deliver full-year growth in the range of 2% to 4%. That's an aggressive target in a retail environment plagued by the twin challenges of price-conscious shoppers and commodity cost inflation. Those trends convinced Unilever (NYSE: UL  ) to forecast only "modest improvement" in its 2012 results despite double-digit sales growth in emerging markets.

Still, P&G began its fiscal year just within the goal range, reporting 2% growth in its fiscal Q1. I'll be watching to see exactly how P&G achieved its sales growth this quarter. If it came from price increases while sales volumes kept falling, that's a bad sign for future profits.

Product innovations
But P&G's year really comes down to its product pipeline. The company is planning to introduce new brands that CEO Bob McDonald calls "discontinuous innovation -- that is, innovation that ... creates new categories and new brands."

We should get an important update on that product pipeline with the earnings report. And crucial to P&G's forecast will be the amount of advertising support it plans to put behind the new brands in order to drive sales growth through the back half of 2013. That's one area where the company can't afford to cut costs.

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11/26/2014 12:23 PM
PG $88.56 Down -0.24 -0.27%
Procter & Gamble CAPS Rating: ****
UL $41.55 Up +0.23 +0.55%
Unilever CAPS Rating: ****

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