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What Drove Procter and Gamble’s Fiscal 4Q17 Earnings Beat

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EPS versus consensus

Procter and Gamble (PG) reported better-than-expected fiscal 4Q17 earnings on Thursday, July 27. The company’s core EPS (earnings per share) of $0.85 handily beat Wall Street’s consensus estimate. Analysts expected the company to post EPS of $0.78, but the EPS rose 7.6% YoY (year-over-year). Moreover, for fiscal 2017, Procter & Gamble’s EPS rose 6.8% to $3.92. Notably, the company has exceeded analysts’ earnings expectations for the past nine consecutive quarters.

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Digging deeper

Procter & Gamble’s fiscal 4Q17 EPS benefitted from productivity improvements and higher cost savings. During the quarter, the company managed to lower overhead and marketing costs, positively impacting the bottom line. However, lower pricing, higher commodity costs, increased competition, and an unfavorable mix continued to hurt profitability.

Decelerating growth in developed markets and uncertainties in emerging countries are taking a toll on the performance of consumer product companies. So consumer product makers are focusing on productivity improvements and costs reductions to drive profitability growth.

The company’s peers Colgate-Palmolive (CL), Kimberly-Clark (KMB), Church & Dwight (CHD), and Clorox (CLX) have adopted productivity and cost-cutting programs to accelerate EPS growth.

Outlook

Procter & Gamble’s management expects its fiscal 2018 core EPS to grow 5%–7%. Higher productivity and cost savings are projected to drive bottom-line growth. Moreover, management anticipates a lower outstanding share count will boost EPS growth further. However, the first half of fiscal 2018 is projected to see lower growth on account of tough YoY comparables. Plus, sales deleverage from the price reduction of Gillette in the United States (SPY) and brand divestitures, coupled with an unfavorable mix and higher commodity costs, are expected to remain a drag.

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