P&G's $3.2B profit beats forecasts
Procter & Gamble reported a $3.2 billion quarterly profit on Tuesday– a 35 percent increase from the same period a year ago.
Net sales for the Cincinnati-based consumer products giant dropped 9 percent to $16.9 billion for its second fiscal quarter ended Dec. 31. Diluted earnings per share were $1.12. Excluding one-time items, core earnings per share were $1.04.
Wall Street analysts had forecast P&G to post a 80 cent profit per diluted share or a $2.8 billion profit before one-time items on sales of $16.9 billion, according to Bloomberg.
Foreign exchange continued to exact an expensive toll on P&G's sales: shaving 8 percent off revenues or roughly $1.4 billion. To protect profitability, the company has raised prices overseas to blunt the effects of currency woes. Foreign exchanges also prompted the company to cut its forecast for earnings per share growth, which it predicts will rise 38 to 46 percent, down from previous range of 53 to 63 percent.
But even as P&G's sales declined, profitability surged on cost-cutting and favorable comparisons from the same quarter a year ago when results were weighed down by $740 million in impairment charges associated with the pending sale of Duracell batteries.
Improved productivity, lower commodity prices and higher pricing boosted P&G's gross profit margin by 1.7 percent, allowing hundreds of millions in more cash to flow to the bottom line. Selling, general and administrative expenses also declined 1.8 percent during the quarter.
P&G shares jumped 2.8 percent or $2.13 to $78.98 in early trading on Tuesday.
Besides beating analysts' profit expectations, P&G also reported positive organic sales growth of 2 percent, its strongest performance in the last year for the metric that excludes the impacts of foreign exchange, acquisitions and divestitures. The company said a 3 percent price increase more than made up a 2 percent decline in organic shipment volume. Organic sales shrank in the first fiscal quarter ended Sept. 30.
“We are encouraged by our return to organic sales growth in the quarter,” said CEO David Taylor, in a statement. “With the top-line improvement and continued cost reduction, we delivered solid core operating income and EPS growth in the face of significant macro-economic and geopolitical
headwinds.”
Taylor took the helm at P&G on Nov. 1.
P&G is in the process of selling off nearly 100 non-core brands in a bid to focus the company on its 65 best-selling labels. The brand-shedding, first announced in summer 2014, is expected to remove more than $10 billion worth of sales from the company. P&G's sale of Duracell batteries to Warren Buffett's Berkshire Hathaway is expected to close before April. A deal to merge 43 beauty brands with New York-based Coty is expected to close this summer.
P&G estimated foreign exchange will shave 7 percent off annual sales ending June 30, up from a previous forecast of 5 to 6 percent impact. The company maintained its sales guidance for the year with organic sales expected to climb low single digits, but total sales expected to drop in the high single digits thanks to currency rates and brand divestitures.
Tepid worldwide growth has prompted central banks around the world to devalue currencies in an attempt to spur exports. But those unfavorable exchange rates evaporate sales for P&G, which does two-thirds of its business outside the U.S. Company executives estimated currency woes cost it $1.7 billion in lost sales during the first quarter ended Sept. 30 and $4.6 billion during the fiscal year ended June 30.
"Unfortunately, we're facing a situation where the dollar is strengthening versus every country in the world," said Chief Financial Officer Jon Moeller on Tuesday in a conference call.
Indeed, the Russian ruble is worth 45 percent less than it was a year ago versus the U.S. dollar, the Brazilian real is worth 41 percent less; the Mexican peso is worth 21 percent less;the euro is worth 12 percent less; the Japanese yen is worth 11 percent less; the Indian rupee is worth 8 percent less; and the British pound is worth 5 percent less.
In the last year, only three currencies in the world have appreciated against the U.S. dollar by more than 1 percent: the Somali schilling, up 22 percent; the Suriname dollar, up 1.5 percent; and the Gambian dalasi, up 1.1 percent, according to Bloomberg.