Is this Good News for P&G, or Its Rivals?

Shares of P&G were up as much as 5% Friday after a fairly bland earnings report. Is it evidence of smooth sailing or the calm before the storm?

Jan 29, 2014 at 1:40PM

Procter & Gamble (NYSE:PG) released Q2 earnings last week, and things were OK. Not spectacular, not disastrous, just OK. Is "OK" worth hanging onto?

The market seemed to think so at first, bumping shares 5% Friday morning to almost $82 a share. But as the day went on, shares began to languish and closed below $80 for only a slight net gain (handily beating the Dow, though). 

The national press was all over the place. "Profit Better than Expected," heralded the Wall Street Journal. But Fox Business News was more bearish, headlining, "Mixed Q2 Results as Margins Dip."  Bloomberg felt the opposite: "Profit Tops Estimates as Emerging Markets Help Sales." ABC News saw it for the mixed bag it was: "Profit Falls, Tops Estimates."  So, seriously folks, is this good news or bad news for the world's largest consumer products company?

All about the earnings
EPS beat analysts' consensus estimates by a penny, coming in at $1.21 vs. the predicted $1.20. That's respectable, but far from mind-blowing. True, with 2.7 billion shares outstanding even a penny's difference represents $27 million overall. But with analysts' estimates rounded to the nearest penny, it's as narrow a win as they come. Also, it's a penny less than a year ago, when EPS came in at $1.22. All told, it's just OK.

CEO A.G. Lafley predicted better earnings to come in 2014. "We expect strong earnings growth in the second half of the fiscal year driven by solid top-line growth, moderating headwinds from foreign exchange, and productivity savings that build throughout the year," he said.

Those "productivity savings," of course, include layoffs that have already begun. So there, at least, Lafley is walking the walk and not just talking the talk. But what about the growth prediction?

"Solid top-line growth"
This, of course, means either more sales or higher margins, or both. Q2 seems to bode well for Lafley's prediction. Although net income was down nearly 16% from a year ago, organic sales were up by 3-5% in most segments, including Grooming (Gillette, etc.), Health Care (Crest, etc., and also pet foods like Iams), Fabric/Home Care (Tide, Cascade, etc.), and Baby/Feminine/Family Care (Pampers, Bounty, Charmin, etc.).

The one underperforming segment was Beauty Care, which reported flat sales. That has to be especially galling to Lafley, since it's been one of his primary areas of focus since returning as CEO.

However, the numbers don't tell the whole story here. The majority of P&G's beauty lineup saw gains, including Hair Care (Pantene, Head & Shoulders, etc.) and Deodorants (Old Spice, Secret, etc.), but these were offset by sluggish sales in Skin Care (Oil of Olay, etc.).

Overall, I believe Lafley's prediction of organic sales growth of 3%-4% for the year will be on target. On the earnings call, CFO Jon Moeller noted that sales strengthened during the last month of Q2, setting up a strong start to Q3.

The competition
But for now, it's doing just OK. So how does "OK" measure up to the competition? Well, it's always tough to compare performance among consumer products giants, simply because no two operate in exactly the same sectors.

P&G's fellow Dow member Johnson & Johnson's (NYSE:JNJ) Listerine and Plax mouthwashes, for example, directly compete with P&G's Scope. But Johnson & Johnson has a massive pharmaceutical business that includes Tylenol and numerous prescription drugs, while P&G does not, so apples-to-apples comparisons are hard to come by.

For what it's worth, though, here's a chart showing how P&G fared in the final months of 2013 compared to its competitors that have also released earnings for that quarter:

Company EPS: Oct.-Dec. 2013 Analysts' EPS Consensus P/E Ratio (TTM) Dividend Yield
P&G  $1.21  $1.20  20.06 3.04%
Johnson & Johnson  $1.24  $1.20  18.80  2.91%
Kimberly Clark (NYSE:KMB)  $1.44  $1.39  22.29 3.02%
Unilever (NYSE:UL)  $2.26  $2.22  19.53 3.55%

P&G is doing just OK compared to these competitors, too. It returned the lowest EPS and beat analysts' estimates by the smallest amount. But its dividend yield is higher than Johnson & Johnson's and Kimberly Clark's, albeit barely. All four companies are seeing strong growth in emerging markets, but facing problems related to currency issues is an inherent part of doing business in those markets. 

What's next?
This earnings report shouldn't make you sell your P&G shares, since it seems to confirm the company's stated objectives without raising any new red flags. Before buying more shares, though, I'd look at Unilever, given its higher yield and lower P/E ratio.

The real test of P&G's future, though, will come this quarter. P&G has a lot invested in the upcoming Winter Olympics in Sochi, and CEO Lafley has highlighted the unique marketing opportunity the Olympics offer, especially overseas.

Looking at how the numbers-especially the overseas numbers-fare in the wake of the Olympics should let us know if P&G's future is bright, or like this earnings report, just OK.

Looking for a solid dividend play?
Consumer products giants tend to offer great dividends. If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

John Bromels owns shares of Procter & Gamble. The Motley Fool recommends Johnson & Johnson, Kimberly Clark, Procter & Gamble, and Unilever. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers