Replies to post #2800 on The Rising Influence of Rising Affluence

[DewDiligence]

PG Expects 3-6% ‘Organic’ Growth in FY2012

[FY4Q11 (ending 6/30/11) EPS was $0.84, modestly beating analysts’ consensus; FY4Q11 sales were +10% YoY, but 5% of this was due to the weak dollar.

More important, PG’s EPS guidance for FY2012 is $4.17-4.33 based on 5-9% growth in sales and 3-6% growth in “organic sales,” which excludes acquisitions and currency changes. The $4.25 midpoint of this range represents 8% YoY growth and a P/E of 14x based on the current share price.]

http://finance.yahoo.com/news/PGs-4Q-profit-rises-15-pct-apf-1614947579.html?x=0

›Friday August 5, 2011, 9:48 am EDT

CINCINNATI (AP) -- Procter & Gamble Co.'s fourth-quarter revenue and net income jumped by double digits on strong sales in emerging markets such as China and India. But the world's largest consumer products company expects a slowdown this quarter as the U.S. and other developed economies struggle.

The Cincinnati-based maker of Tide detergent, Pantene shampoo and Gillette shavers on Friday reported net income rose 15 percent to $2.51 billion, or 84 cents per share. Revenue jumped 10 percent to $20.86 billion. Analysts expected earnings of 82 cents per share on revenue of $20.57 billion.

P&G boosted revenues by hiking prices for products including Pampers diapers and Cascade dish detergent. [Pricing contributed 3% to the FY4Q11 sales growth.] P&G and other consumer products makers have raised prices as they deal with higher raw materials and energy costs. Organic sales, a key measure that excludes impacts such as currency changes and acquisitions and sell-offs of businesses, grew by a solid 5 percent in the quarter [3% from volume, 3% from pricing, -1% from mix].

The company also said it's cutting costs by streamlining its operations, while outspending competitors in research and development of new products and in marketing. The world's biggest advertiser said it spent $9.3 billion on marketing last year, the second straight year it has set a company record, while investing $2 billion in R&D that has led to popular new products such as Crest 3D White and a Gain dishwashing liquid spun off from the laundry detergent.

P&G expects earnings for the year ahead to be in a range of $4.17 to $4.33 per share, with sales growing 5 to 9 percent. Analysts expect earnings of $4.29 per share on revenue of $87 billion, up 5 percent.

In the current quarter, P&G expects earnings per share in a $1 to $1.04 range; analysts were looking for $1.14. P&G also sees sales slowing down in places such as the U.S., Europe, and Japan. It projects organic sales growth of 2 to 4 percent overall, with net sales up 6 to 9 percent.

"I don't think there's any question that consumers, particularly in developed markets, are under pressure," Bob McDonald, P&G's chairman and CEO, told reporters in a conference call. He said P&G was pleased with results overall under the economic conditions in developed countries.

He said P&G feels confident it can keep growing sales behind innovative new products and by offering its well-known brands at a variety of price tiers to stave off private label trade down by shoppers. [Well, duh—that’s the business they’re in.]

"We've been to this movie before," McDonald said.

P&G has scored a big hit in India with the Gillette Guard razors that sell for pennies. P&G said it added 11 million new users in India in the past quarter; the company hopes getting men in emerging markets to try its big brand will lead to them trading up to higher-priced Gillette products.

Other strong growth came from SK2 cosmetics and Always feminine products in China, Olay skin care in the Philippines, Saudi Arabia and India, and Pantene and Head & Shoulders shampoos in Brazil.

Consumers in developed markets slowed spending on Duracell batteries and on P&G's high-end salon beauty products.

The fourth-quarter results looked even brighter against last year's quarter, when net income slid 12 percent as the company spent heavily on marketing to get sales moving.

Citi analyst Wendy Nicholson said P&G results got help from lower taxes, but she told clients in a note she's keeping her "buy" rating on the stock on its sales growth.

"PG's organic sales growth momentum is good, and we like that PG seems to be acting as a leader in taking pricing up, while at the same time still gaining market share on the heels of innovation and distribution expansion," Nicholson wrote.‹

[DewDiligence]

Angry Analysts Scorch P&G CEO

[Without a doubt, PG had a bad quarter; the stock is down 5% since the earnings announcement before the open last Friday, which is a big move for such a stable stock. Among the reasons for the poor quarter were large cost increases for raw materials that PG does not expect to continue into 2013 and a currency devaluation in Venezuela (see in-line comments below). Just plain bad execution was also a factor in the quarter (which is what irked the analysts so much), but I figure that PG’s top management is not stupid and hence the poor execution will benefit in due course from a “regression to the mean” effect.

FY2Q12 YoY sales growth was an anemic 4% (4% from pricing, 1% from volume, and -1% form mix) and “organic” YoY sales growth (excluding acquisitions, divestitures, and currency) was also 4%. PG lowered non-GAAP FY2012 EPS guidance (excluding the Pringles sale and other one-off items) to $3.83-3.88, down from old guidance of 3.93-4.03, which was given prior to Venezuela devaluation. The current share price thus 16-17x the (arguably depressed) FY2012 EPS, which may not be a screaming buy but is not excessive, IMO.

Despite the weak results, PG’s prospects don’t seem all that bleak to me, and I’m content to receive the juicy $2.25 dividend (#msg-74380856) while waiting for business to improve. What’s undeniable is that PG is a strong play on The Global Demographic Tailwind in many categories. Emerging markets will comprise 37% of PG’s dollar sales (and 45% of unit sales) by end of FY2012 and this figure is apt to reach 50% in a few years. PG is certainly not going to double your money in a short time, but it’s a legitimate core TGDT holding that could easily double your money (on a total-return basis including dividends) during the next 5 years or so.

If anyone disagrees, please post!]

http://online.wsj.com/article/SB10001424052702304811304577369553120154614.html

›April 28, 2012
By EMILY GLAZER

"Good quarter, guys" wasn't the message Procter & Gamble Co. Chief Executive Robert McDonald got when he dialed in to his company's earnings conference call Friday.

Instead, he confronted an unusually angry barrage from Wall Street analysts over the latest in a string of weak results from the world's largest consumer products company.

The analysts showed little restraint in venting their frustration after P&G lowered its profit outlook and said it would roll back recent attempts to raise prices in key markets.

P&G's sales rose 3%, which looked skimpy against an 8.5% rise for rival Unilever PLC and a 6.5% increase for Colgate-Palmolive Co.

P&G blamed weak developed markets and competitors' failure to follow its lead on price hikes. But some analysts blamed Mr. McDonald.

"It strikes me that from an execution perspective, P&G isn't delivering," said Citigroup analyst Wendy Nicholson.

"There's so many excuses: Not our fault, competition didn't follow the pricing; not our fault, Venezuela changed; not our fault, the developed consumer isn't robust," she continued. "And I just say to myself, God, where is the mea culpa?" [Actually, the new price controls in Venezuela—effectively a devaluation—cost PG about $0.05 of EPS during the quarter. Other consumer-products companies operating in Venezuela there who have not yet taken a hit to earnings will presumably have to do so later.]

Tim Conder, a Wells Fargo analyst, and Ali Dibadj, a Sanford C. Bernstein analyst, echoed those sentiments, pointedly asking Mr. McDonald why P&G continued to stumble when its rivals managed to steer around the same obstacles.

"How much patience," Mr. Dibadj asked, "does the board have?"

Answering Ms. Nicholson, Mr. McDonald said: "Let me be clear. It is my fault. I am the CEO of the company. I do take responsibility."

The tone of the comments was remarkable by the often soft-shoe standards of Wall Street stock research. [No doubt on this point.] Analysts are often accused of being overly forgiving with CEOs, a reputation they feed by regularly uttering words of congratulations on conference calls [this unseemly behavior applies to US analysts, specifically—see #msg-74483547].

Good relations are important to preserve access to company executives, so criticisms, when they do come up, tend to be heavily couched. But frustration is growing with P&G's performance. The company has failed to squeeze the expected results out of big areas like its beauty and grooming business, and has been slow to cut costs even as consumer demand weakened in the wake of the recession.

Those failings are evident in P&G's stock, which has changed little over the past two years. Meanwhile, Unilever's is up 13% and Colgate's is up 17%. P&G shares fell 3.6% to $64.46 Friday, their biggest drop in 2½ years. The decline came after the maker of Bounty paper towels, Pampers diapers and other household staples reported a 16% decline in earnings amid high commodity costs and charges related to cost-cutting plans.

The consumer products giant cut prices aggressively in recent years in a worldwide battle for market share. More recently, it has tried to roll back some of those cuts as input prices have risen. Those moves cut into P&G's market share, which fell in 55% of the categories and countries where it competes.

As a result, P&G said it would again cut prices for powdered laundry detergent in the U.S., as well as on oral care, automatic dishwashing detergent, and blades and razors in North America.

P&G is also lowering prices on its laundry detergent in the U.K. and Mexico. The company says it implemented $3.5 billion in price increases this year and plans to roll them back by $200 million.

P&G announced a cost-cutting program in February that involves eliminating more than 4,000 jobs, streamlining its massive marketing budget and chopping other expenses by fiscal 2016.

The company plans to steer savings from the cuts into expanding its position in emerging markets.

For the quarter ended March 31, P&G reported a profit of $2.41 billion, down from $2.87 billion a year earlier. For the full fiscal year, which ends in June, the company said it expects earnings of $3.82 to $3.88 a share. It had previously forecast earnings of $3.93 to $4.03 a share.

Price controls in Venezuela, which required price cuts of up to 25% on certain P&G products, are also weighing on results for the company.‹

[DewDiligence]

COTY +19% on rumor regarding PG’s beauty business:

http://finance.yahoo.com/news/coty-track-clinch-p-g-163642125.html

Coty is on track to acquire Proctor & Gamble's beauty business in a $12 billion deal that would make the U.S. cosmetic company the world leader in perfume and hair care, sources close to the matter said.

If the deal goes though, Coty would get its hands on brands such as Gucci and Hugo Boss perfume, Wella and Clairol hair care products and Max Factor and Cover Girl make-up, part of its strategy to reverse its own declining sales trends.

For P&G, the sale is part of a large plan to narrow its focus on fewer, faster-growing brands.

[DewDiligence]

Barron’s—PG may now be worth a look:

http://www.barrons.com/articles/p-gs-inflection-point-1442637878

When last we weighed in on Procter & Gamble (ticker: PG) in the July 20 Trader, after its stock had fallen to $82 from $94, we didn’t think the stock was cheap enough to bite. The company needs to reignite its innovation engines to achieve growth.

Still, after another 15% drop since then, to $69.94—below the high of the previous bull market—the stock is beginning to look cheap enough to discount a pretty gloomy future.

Given its nearly 4% dividend yield, P&G’s stock could provide a relatively safe, if unglamorous, return for a patient, income-seeking investor with a long-term outlook. If less anxiety is included in the measure, P&G could deliver an attractive return, especially if the broad market’s volatility continues or worsens. Indeed, the dividend yield is the highest it has been by far in the past 20 years, which includes two pretty awful bear markets.