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Here’s What’s behind PG’s Fiscal 3Q17 Bottom Line Beat

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EPS boosted by lower taxes

Procter & Gamble (PG) reported its fiscal 3Q17 results on April 26, 2017. Its adjusted EPS (earnings per share) of $0.96 exceeded Wall Street’s consensus estimate of $0.94 and jumped 11.6% YoY (year-over-year), thanks to lower taxes. The company has exceeded analysts’ earnings expectations in the past eight quarters, as you can see in the graph below.

The company has exceeded analysts’ earnings expectations in the past eight quarters.

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Delving deeper

Most of the company’s categories are witnessing moderate sales growth. Meanwhile, a slow growth environment, especially in the United States (SPY), which is the largest market in terms of sales and profitability, is taking a toll on the company’s financials. Despite the tough operating environment, driving double-digit bottom line growth is surely commendable on the company’s part.

Consumer product companies have relied heavily upon productivity and cost savings to drive their bottom-line growth. For instance, Kimberly-Clark (KMB), which reported its 1Q17 results on April 24, 2017, exceeded Wall Street’s consensus estimate on the back of its productivity and cost-savings initiatives and favorable currency movements.

Similarly, stringent cost-control measures and share buybacks have been the key reasons behind Procter & Gamble’s bottom-line growth in the past quarters as higher sales remain elusive. Notably, this quarter was different. Although the company managed to generate productivity and cost savings, its increased marketing and R&D (research and development) spending and higher commodity costs more than offset the positives, raising concerns.

Outlook

Despite weak fiscal 3Q17 results, the company’s management reiterated its EPS guidance. It expects its adjusted EPS growth to be in the mid–single digits for fiscal 2017, compared to its adjusted EPS of $3.67 in fiscal 2016.

However, macroeconomic challenges in key markets, a strong dollar, rising input costs, and increased spending on advertising and R&D initiatives to push sales are likely to dent the company’s bottom line results in the coming quarters.

ETF investors looking for exposure to Procter & Gamble can consider the Fidelity MSCI Consumer Staples Index ETF (FSTA), which invests 11.0% of its portfolio in the company.

Next, let’s look at the company’s top line performance.

 

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