Ah, the old expectations game: Wall Street analysts predict a company's quarterly earnings, a number usually falling within a range of "guidance" offered by the company itself. If the company beats the Street's collective estimate, it's rewarded with a price jump. Last week, according to Reuters, 70 of the 100 companies reporting quarterly results beat analyst estimates. In this environment, heaven help the company that misses -- or merely meets -- expectations.
Like, oh, Procter & Gamble
A different perspective
That's true, but on the other hand, P&G's earnings reports are very clean. Many consumer-products companies are excluding blemishes from their operating income via "restructuring" and "one-time unusual events." I admire the way P&G reports numbers -- it avoids unusual items, and it accepts the good with the bad.
I'd call P&G's results solid -- not spectacular, but certainly not a major stumble. Total sales rose 8%, with organic sales (excluding the effects of foreign currency) up 6%. Worldwide unit volume was also up a healthy 6%. Compare this with Kimberly-Clark's
Non-operating income, margin improvements, and a lower share count drove EPS to a 17% gain year over year. Pretty decent.
On the other hand ...
I'll temper my analysis with one caveat. P&G didn't report foreign currency's impact on operating income. Looking at other consumer-products companies this quarter, we can estimate this figure in the range of 2% to 4%, which would make P&G's 9% operating income increase not quite as solid.
Another factor that might concern analysts: P&G's decision to stop issuing mid-quarter earnings guidance. The company will continue to give guidance when releasing quarterly results, but it's concluded that mid-quarter updates don't add strategic value. I agree, and I'd prefer to see more companies head down the "no guidance" route firmly advocated by Warren Buffett. P&G even went out of its way not to upset the analysts by continuing its mid-quarter guidance updates until the October through December quarter.
Also, the company committed the sin of not raising full-year guidance. It did increase the bottom end of that range by $0.02, but it left the top end unchanged.
A buying opportunity?
While Avon Products
For other thoughts on P&G, check out:
- 4 Stocks That Took a Hike
- The Ultimate Rule Maker: Procter & Gamble
- The Best Blue Chip for 2007: Procter & Gamble
Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He welcomes comments on his articles, and doesn't own shares of any companies mentioned in this article.