3 Surprises in Procter & Gamble's Earnings

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Procter & Gamble (NYSE: PG  ) reported strong results for its fiscal second quarter. Analysts were expecting flat earnings of $1.11 per share on a slight decline in revenue. But P&G beat on both the top and bottom lines. The company delivered a surprising $1.22 per share in profits after revenue rose to $22.2 billion.

Lower costs 
Key to that profit beat was the fact that P&G managed to slice costs in the quarter. Gross margin rose by 80 basis points, to 50.9%. And net earnings were boosted by those productivity savings in all of the company's business segments except for health care, where P&G made extra investments in the supply chain and ramped up marketing spending in emerging markets. The company has been pushing its productivity and cost savings plan for some time now, and it paid off this quarter.

Higher sales
Organic sales growth also came in strong, at 3%. That number keeps P&G squarely within its goal of 2% to 4% sales expansion for the year. Still, growth wasn't evenly spread out between volume and pricing increases. Sales growth in P&G's beauty and grooming segments was driven completely by higher prices, while volumes stayed flat or declined. By comparison, Unilever's (NYSE: UL  ) personal care business saw a 7.2% expansion in volume and a 2.9% boost in prices, for total growth of 11.5% in the quarter. P&G isn't seeing nearly as strong a growth in volumes.

A better outlook
But the company expects continued improvement ahead. It raised EPS guidance for the year, and boosted its organic sales guidance, too. P&G also tossed another $1 billion into its share repurchase bucket, saying that it now plans to buy back $5 to $6 billion of its stock.

Overall, it was a good report, and it shows that CEO Bob McDonald has been able to manage some key improvements at the consumer products giant. It's true that sales volume growth is still lacking, but P&G has been planning for a ramp up in volume in the back half of the year. The company's surprisingly strong second-quarter results give P&G plenty of resources to put behind the new product rollouts that the company has planned for the months ahead.

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Related Tickers

9/28/2016 4:02 PM
PG $89.46 Up +1.10 +1.24%
Procter and Gamble CAPS Rating: ****
UL $47.68 Up +0.38 +0.80%
Unilever CAPS Rating: *****