Procter & Gamble disappointed on margins
Procter & Gamble (PG) reported mixed fiscal 1Q18 results. The company topped analysts’ EPS (earnings per share) estimate. However, sales remained shy of analysts’ consensus estimate. Procter & Gamble managed to improve its volumes at a slower rate and generated strong productivity savings.
However, a negative mix, greater-than-expected increase in raw material costs, and price investments in the shave care category more than offset the benefits of incremental productivity savings and impacted the margins. Procter & Gamble’s gross and operating margins fell, which didn’t sit well with investors. The company’s stock fell 3.7% after the fiscal 1Q18 results.
Notably, Procter & Gamble’s global value share fell in four out of five business segments during the reported quarter. Increased competition, especially in the Grooming and Baby Care segments, are taking a toll on its volumes. Meanwhile, decelerating market growth remains a drag.
The company expects raw material prices to remain elevated, which could hurt its margins in the coming quarters. An unfavorable mix and lower pricing to fend off competition could continue to dent its margins.
However, Procter & Gamble’s focus on premium offerings led by innovation generated higher sales, which should help the company defend its market share. The company’s profitability is projected to benefit from productivity savings and a lower share count.
Procter & Gamble stock has risen 5.0% on a YTD (year-to-date) basis. It’s expected to underperform the S&P 500 Index (SPX-INDEX) in 2017. The benchmark index has risen 15.0% on a YTD basis. Following Procter & Gamble’s tepid performance on the margins front, the stock prices of consumer product manufacturers in the US (SPY) fell on Friday. Investors dumped these stocks. They fear that moderating industry growth and higher raw material costs could pressure these companies’ earnings.