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Procter & Gamble Stock Fell despite Strong Q3 Results

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Weakness in grooming and baby care remained a drag

Procter & Gamble (PG) posted impressive third-quarter results on April 23. Record organic sales, productivity savings, lower taxes, and share repurchases drove the company’s better-than-expected sales and earnings in the third quarter. However, the shares fell 2.7% due to continued weakness in the grooming and baby care segment.

Competitive headwinds in the value segment continued to impact the grooming and baby care segment’s sales. The sales registered a low-single-digit decline in organic sales during the reported quarter.

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Despite challenges in the grooming and baby care segment, Procter & Gamble’s organic sales rose 5% due to stellar growth in the United States and China. Higher pricing and premium innovation supported the company’s third-quarter organic sales.

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Management expects innovation to support the grooming and baby care segment’s sales in the coming quarters. However, competitive headwinds and volumes declined following a price increase, which could continue to hurt. Also, Procter & Gamble faces tough YoY (year-over-year) comparisons in the coming quarters, which could limit the sales growth rate. Cost headwinds will likely remain a drag.

Where could the stock be heading?

Procter & Gamble’s financial performance has been impressive in fiscal 2019. The company’s price restructuring initiatives, premium innovation, productivity savings, and a strong history of enhancing shareholders’ returns are expected to support its stock in the near term and limit the downside. However, the anticipated slowdown in the growth rate and high valuation could limit the upside.

Procter & Gamble stock has risen 12.2% on a YTD basis as of April 23. In comparison, Colgate-Palmolive (CL), Church & Dwight (CHD), and Kimberly-Clark (KMB) stock have risen 15.9%, 11.3%, and 10.3%, respectively.

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