Image source: P&G.

Procter & Gamble (PG -0.13%) has been promising a growth rebound for two years, but this week investors could finally see evidence of that recovery taking hold.

The consumer goods giant is expected to announce just a small uptick in profit amid flat revenue when it posts fiscal second-quarter earnings results on Jan 25. However, its operating picture should be brighter than what those headline results suggest.

Market share

The company is already growing at a faster pace. Last quarter, organic revenue rose by 3% to mark P&G's best result on that metric since early 2014.

Image source: P&G investor presentation.

Looking deeper into the numbers, a few trends suggest Procter & Gamble could be in the early innings of a sustainable improvement here. First, momentum is on its side. Organic growth was flat three quarters ago before rising to a 2% pace and then to a 3% rate in the fiscal first quarter. Next, P&G has closed the gap with rivals. The 2% pace it is on track to hit in fiscal 2017 is the same as Kimberly-Clark (KMB -0.28%), which trounced the company by two full percentage points in each of the prior two fiscal years.

Finally, P&G's latest growth has come from volume gains, rather than price hikes, meaning the company could finally be ending its two-year market share slide. Investors should temper their enthusiasm, though, since the global market is currently bumping along at near-zero growth. Peer Unilever (UL 1.26%) warned in late October that demand gains weakened to flat in some of its biggest markets. And Kimberly-Clark sounded the same tone in its third-quarter press release, with management complaining of a "challenging economic and competitive environment" that sent volume expansion to 0% from 3% in the prior quarter. P&G will post its results within days of both Unilever and Kimberly-Clark, and if it continues to close the growth gap, then investors will know management is on the right track.


CEO David Taylor and his executive team expect earnings to rise by about 6% this year, not including the temporary effects of foreign currency swings and brand divestments. That would be the first time in three years that P&G has hit its long-term target of profit growth in the mid-single digits after core earnings fell by 2% in both fiscal 2016 and 2015.

There's reason for optimism about a further rebound in the cards. After all, P&G's profit target was put together when the company was much larger, and much harder to manage. Now that it has shed 100 of its slowest-growing, least-profitable franchises, though, the profit picture should improve.

Executives believe that the new portfolio of brands, led by blockbusters like Pampers and Gillette, should grow at a 1% faster organic sales pace and enjoy a full percentage point of higher profitability. While investors wait for those improvements to accrue to the bottom line, P&G's cost-cutting program should deliver more immediate benefits over the next few quarters.

Growth outlook

There are major headwinds that will make it difficult for Procter & Gamble to wow investors this week, including a soft demand environment for branded consumer products. Yet if there's any time for the company to break away from rivals and leave its own slow-growth history behind, this would be it.

P&G just completed the biggest transformation in its corporate history and finally has the collection of brands that it wants -- all at a much lower cost burden. That improved positioning might at least get the company back on track to more normal sales and profit gains in fiscal 2017, while also raising expectations for accelerated growth ahead.