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Investor Expectations for Procter & Gamble’s Fiscal 2Q16 Earnings

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Expected adjusted EPS

Procter & Gamble’s (or P&G’s) (PG) fiscal 2Q16 earnings will be announced on January 26, 2016. The Wall Street consensus analyst estimate for adjusted EPS (earnings per share) in fiscal 2Q16 is $0.98. The second quarter ended on December 31, 2015. The estimate represents a 13.7% fall year-over-year compared to the adjusted EPS in fiscal 2Q15. P&G estimates a 4%–5% negative foreign currency impact on EPS, which might affect the first half of fiscal 2016.

P&G’s adjusted EPS fell 1% compared to the previous year in reported terms. It increased 12% on a constant currency basis to $0.98 in fiscal 1Q16.

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Reasons for the rise

On an all-GAAP (generally accepted accounting principles) basis, EPS increased 32% to $0.91 in fiscal 1Q16 compared to the same quarter in the previous year. EPS also benefited from an operating margin improvement of 340 basis points to 22.8% driven by productivity savings. The reported earnings declined primarily due to a 13 percentage point foreign exchange headwind and nearly $0.4 billion after tax.

Similarly, for Clorox (CLX), fiscal 1Q16 diluted EPS increased 15.1% to $1.18. Adjusted EPS for Kimberly-Clark (KMB) increased 0.7% to $1.51 in calendar 3Q15 compared to adjusted EPS from continuing operations of $1.50. Colgate-Palmolive’s (CL) calendar 3Q15 diluted EPS of $0.72 was in line with Wall Street analyst estimates.

Stronger US dollar

A stronger US dollar continues to impact P&G’s revenues and earnings, as the company derives ~63% of its revenue from outside the United States. In comparison, Colgate-Palmolive (CL) derives ~77% of its revenue from outside the United States. Unilever (UL) and Estée Lauder (EL) also derive revenue from outside the United States.

There may be an impact on P&G’s margins and EPS from the company’s large positions in the toughest markets of Russia, Ukraine, Japan, and Venezuela. There could also be an impact from the significant devaluation of almost all non-US currencies, including China.

P&G has exposure in the iShares Morningstar Large-Cap ETF (JKD) with 4.2%[1. updated as of October 24, 2015] of the total portfolio.

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