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Will PG Stock Rise on Fiscal 3Q17 Results?

PART:
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Part 3
Will PG Stock Rise on Fiscal 3Q17 Results? PART 3 OF 6

Why Procter & Gamble’s 3Q Sales Might Remain Flat

Foreign exchange and macro headwinds pose challenges

Analysts expect Procter & Gamble (PG) to post revenue of $15.7 billion in fiscal 3Q17, a YoY (year-over-year) decline of 0.3%. The company is expected to witness an increase in its volume, which in turn will boost organic sales growth. However, unfavorable currency movements and macroeconomic headwinds are likely to dent the company’s top line.

Why Procter &amp; Gamble’s 3Q Sales Might Remain Flat

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The trend is more or less similar to the company’s peers. Analysts expect Kimberly-Clark (KMB) to post revenue of $4.5 billion in 1Q17, reflecting a YoY (year-over-year) growth of 0.5%. Meanwhile, Colgate-Palmolive’s (CL) top line is expected to increase 0.8% in its upcoming quarter. Tough operating environments in certain key markets, an adverse product mix, and unfavorable currency movements are expected to lower the sales growth for the consumer product companies.

Past performance instills confidence

Despite challenges, Procter & Gamble has managed to pull off healthy organic sales during the first half of fiscal 2017. Two of its largest markets, the US (SPY) and China, have also shown signs of improvement.

Meanwhile, the company’s four major categories also marked a steep recovery in organic sales for fiscal 1Q17. Further, Procter & Gamble experienced higher organic sales in 11 of 15 of its key markets. Moreover, the company also managed to deliver organic sales growth in nine out of its ten product categories.

2H17 could be better

Procter & Gamble expects its organic sales to grow in the range of 2.0%–3.0% for fiscal 2017, which is somewhat better than the 2.0% growth Kimberly-Clark expects to generate. Procter & Gamble is focusing on driving category growth through premium product innovation and user growth in the mid-tier and value-tier segments through price restructuring.

Management noted that the company’s latest innovation-driven products including Tide PODS Plus Downy, fabric enhancer scent beads, and Cascade Platinum are growing at a rapid rate and are expected to accelerate the company’s top-line growth. Meanwhile, the company reduced its brand portfolio substantially to focus on core categories and fewer brands in order to drive sales growth. Further, the company’s decision to reduce the prices of some of its Gillette blades and razors in the US could spur user growth.

In the next part, we’ll look at the company’s margins trend.

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