Why Procter & Gamble Earnings Might Not Bounce Back Tomorrow

Procter & Gamble (NYSE: PG  ) is scheduled to release its quarterly earnings report tomorrow. The stock has soared recently as the company has made some major strategic moves to reinvigorate its flagging business. But turnarounds often take more time than investors hope, and Procter & Gamble, a consumer products giant titan and 81-year member of the Dow Jones Industrials (DJINDICES: ^DJI  ) , may actually see the most recent quarter's earnings pull back somewhat compared to last year's figures.

Investors flock to Procter & Gamble because of consumers' dependable demand for its products. With more than two dozen products that bring in revenue of at least $1 billion per year apiece, P&G is a branding powerhouse that has built up a worldwide presence. Yet will P&G take maximum advantage of its opportunities to grow in areas where middle-class consumers are only now gaining the financial wherewithal to buy its products? Let's take an early look at what's been happening with Procter & Gamble over the past quarter and what we're likely to see in its quarterly report.

Stats on Procter & Gamble

Analyst EPS Estimate

$0.77

Change From Year-Ago EPS

(6.1%)

Revenue Estimate

$20.55 billion

Change From Year-Ago Revenue

1.7%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

When will Procter & Gamble earnings start growing again?
For the most part, analysts have stayed locked in on their estimates for Procter & Gamble earnings in recent months, leaving their consensus figures for the June quarter untouched and adjusting their calls for the 2014 fiscal year downward by just a single penny per share. The stock has done better than those projections would suggest, rising about 6% since late April.

The surprising thing about P&G's projected earnings shortfall is that it follows substantial growth last quarter. In April, the company announced a 7% rise in first-quarter earnings, with cost-cutting measures having paid off and helping to offset weakness in revenue growth, which came in at just 3%. With a boost in projected earnings guidance for the full year, P&G seemed increasingly optimistic about its future.

But even P&G hasn't been completely immune to earnings pressure. With consumers in some areas still feeling the economic slowdown, P&G and Church & Dwight had to sacrifice their gross margins in competing on price in the detergent space, hurting earnings for both companies in recent quarters. Those pressures were part of the reason why P&G decided to bring back former CEO A. G. Lafley to replace Robert McDonald in leading the company forward, as Lafley's track record in competing against other industry giants was much better than McDonald's.

Competitors' results should shed some light on how P&G will fare tomorrow. Kimberly-Clark (NYSE: KMB  ) managed to beat earnings estimates, growing net income 8.5% despite reporting flat sales. Weakness in personal-care products weighed on the company overall, with revenue dropping 1% due to a strong dollar and lower sales volumes that could carry over to P&G's similar product lines. Meanwhile, Colgate-Palmolive (NYSE: CL  ) met earnings expectations but cut its guidance for the full year, citing currency effects even as it brings on some new product innovations. With Unilever pointing to weakness in emerging markets, P&G will have to work hard to overcome all the headwinds in the industry.

In tomorrow's Procter & Gamble earnings report, watch to see how Lafley puts his mark on the company's presentation. It's critical for Lafley to assume a strong leadership role as P&G seeks to reposition itself for long-term earnings growth. If he can succeed, then investors will soon forget a single quarter's modest earnings decline.

One of P&G's claims to fame is its long-standing record of dividend increases. If that's what appeals to you about the stock, then you should look at some other dividend-paying ideas. You'll find what you're looking for in The Motley Fool's special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

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