Procter & Gamble: Are Analysts' Third-Quarter Earnings Estimates Too Conservative?

P&G will soon release its quarterly results, so let's see what we can expect the report to hold.

Apr 12, 2014 at 10:00AM

Procter & Gamble (NYSE:PG), the consumer-goods giant behind 25 billion-dollar brands, plans to release its quarterly results in the coming days. Although it is in the midst of restructuring its international units, expectations still call for it to show growth from the year ago period. Let's take a look at its most recent earnings release and the expectations for the upcoming report to decide if we should pile into the stock right now or if we should wait to see what the quarter holds.

Brands Landing Banner Beauty

Source: Procter & Gamble

The last time out
On Jan. 24, P&G released its second-quarter report for fiscal 2014 and the results were mixed in comparison with analysts' expectations; here's a breakdown and a year-over-year comparison:

Earnings Per Share $1.21 $1.20
Revenue $22.28 billion $22.35 billion

Source: Benzinga

Screen Shot

Source: P&G

P&G's earnings per share decreased 1% and revenue came in flat year-over-year, while organic sales grew a strong 3%. All of P&G's segments showed volume growth, led by increases of 6% in health care, 5% in fabric and home Care, and 3% in baby, feminine, and family care. Gross profit declined 1% to $11.15 billion and the gross margin took a slight hit, declining 90 basis points to 50%.

The highlight of the quarter came with the note that the company generated $3.3 billion in operating cash flow, which it used to repurchase approximately $1.5 billion of its common stock and pay approximately $1.7 billion in dividends. Also, the company reaffirmed its full-year guidance, calling for core earnings-per-share growth of 5%-7% and revenue growth of 1%-2%. P&G's stock reacted positively to all of this news by rising 1.8% in the day's trading session and its shares have built on these gains in the months since then.

Expectations & what to watch for
Third-quarter results are due out before the market opens on April 23; here are the current consensus analyst estimates:

MetricExpectedYear Ago
Earnings Per Share $1.02 $0.99
Revenue $20.68 billion $20.60 billion

Source: Estimize

Screen Shot

Source: P&G

These expectations call for P&G's earnings per share to increase 3% and revenue to rise 0.4% year-over-year. In the second-quarter report, CEO A.G. Lafley stated, "We expect strong earnings growth in the second half of the year driven by solid top-line growth," so it appears that he and the company are much more bullish than analysts. With this said, there are three other factors to watch for in the report:

  • First, it will be important for P&G to reaffirm its full-year outlook once again, and while doing so, provide fourth-quarter guidance that is within analysts' expected range; currently analysts expect earnings per share of $0.93 on revenue of $20.90 billion.
  • Secondly, I would like the company to once again show over $3 billion in operating cash flow and use this to continue repurchasing shares while paying the rest out as dividends. P&G is highly dedicated to maximizing returns to shareholders, so it is a safe bet that this will come true.
  • Lastly, watch for updates on the current status of the restructuring. It would be great if the company gave an estimated completion date, but any update would be welcomed since none were given in the second-quarter report. Also, I would really like P&G to name potential candidates to succeed CEO A.G. Lafley. Mr. Lafley was brought in to head up the restructuring, so it is unlikely that he will stay much longer after the process is completed.

I believe the company will beat these earnings estimates, with organic sales and global volume growth as drivers, and provide guidance for the fourth quarter that satisfies expectations, which will cause the stock to rise following the release; for these reasons, I would be a buyer of Procter & Gamble.

An indicator to watch for
Kimberly Clark (NYSE:KMB), one of P&G's largest competitors, is scheduled to release its quarterly results two days earlier on April 21. Kimberly Clark is the company behind global brands such as Cottonelle, Kleenex, Scott, Kotex, and Huggies, and its earnings report could be a direct indicator for that of P&G; here's a summary of what analyst s expect Kimberly Clark's first-quarter report will hold:

MetricExpectedYear Ago
Earnings Per Share $1.48 $1.48
Revenue $5.32 billion $5.32 billion

Source: Estimize


Source: Kimberly Clark

As you can see, analysts expect Kimberly Clark's earnings per share and revenue to remain flat year-over-year. Estimates aside, the company will likely build on the $567 million it returned to shareholders via dividends and share repurchases during the fourth quarter.

In addition, Kimberly Clark expects to benefit from about $330 million in savings over the year as a result of its cost-cutting program and from the restructuring of its tissue formula; this is a major positive for the company and it will help boost Kimberly Clark's profitability in the quarter and going forward.

With all of this being said, Kimberly Clark represents a great investment opportunity on its own, but Foolish investors who are interested in P&G should watch its report closely as it will be a strong indicator of things to come.

The Foolish bottom line
Procter & Gamble is a $219 billion titan in the global marketplace and I believe analysts are too conservative on the third quarter. I think P&G will exceed expectations with results driven by organic sales growth and volume growth across all of its segments and lower-than-expected costs associated with the restructuring, which will lead to a run higher in its share price. For these reasons, Foolish investors should consider initiating positions in P&G going into the report and they can rest assured by knowing that the company's healthy 3.2% dividend will provide downside protection if a miss were to occur.

One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Joseph Solitro has no position in any stocks mentioned. The Motley Fool recommends Kimberly Clark and Procter & Gamble. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

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.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

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. The show is also heard weekly on dozens of 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. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers