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Can Procter & Gamble Improve Its Earnings in Fiscal 2018?

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Past performance

Procter & Gamble (PG) has managed to increase its earnings despite weak sales. It has surpassed analysts’ EPS (earnings per share) expectations for ten consecutive quarters, thanks to margin expansion driven by cost and productivity savings measures. However, given the pressure on margins in the near term from increased price investments, low market growth, and inflation in commodity prices, Procter & Gamble’s bottom line performance could take a hit. An adverse mix and an anticipated rise in transportation and logistics costs could further hurt the company’s EPS.

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Fiscal 2018 outlook

During the last reported quarter, Procter & Gamble’s margins contracted as benefits from cost and productivity savings and improved volumes were more than offset by an increase in commodity costs, lower pricing to drive sales of razors, and an unfavorable mix.

The trend might continue at least in the near term. Management expects inflation in commodity prices (including pulp and ethylene) to hurt profitability by ~$300 million in fiscal 2018. The company’s earnings are projected to remain low in the first half of fiscal 2018, reflecting higher input costs, low pricing, and tough YoY (year-over-year) comparables. Slow category growth could also remain a drag.

However, margin headwinds are estimated to dissipate during the second half of fiscal 2018, and the company’s EPS is likely to benefit from incremental cost-savings and share buybacks. The company expects its adjusted EPS to grow 5%–7% in fiscal 2018. Analysts are projecting a 6.4% YoY increase in the company’s bottom line for fiscal 2018. Its bottom line is also expected to rise 7% in fiscal 2019.

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