What Could Support Procter & Gamble’s Bottom Line?

Procter & Gamble (PG) had an impressive bottom-line performance over the past several quarters. Procter & Gamble managed to improve its adjusted earnings on a YoY (year-over-year) basis. The company beat analysts’ estimates in the past 16 quarters.

Procter & Gamble’s strong performance on the bottom-line front is encouraging. Household and personal care product manufacturers are taking a hit on the profit margins due to inflation in raw material and packaging costs. Heightened competitive activity and negative currency rates also pressure the margins and EPS.

On average, Procter & Gamble beat analysts’ estimates by 4% in the past 16 quarters due to productivity and cost savings, share buybacks, and the lower effective tax rate. Higher pricing and a favorable mix have also supported Procter & Gamble’s bottom line in fiscal 2019.

Besides Procter & Gamble, Church & Dwight (CHD) has also beat analysts’ EPS estimates in the past several quarters due to its strong organic sales growth and cost-saving measures. Colgate-Palmolive (CL) and Kimberly-Clark’s (KMB) bottom lines stayed low. For these companies, cost headwinds remained a drag.

We expect Procter & Gamble’s bottom line to continue to grow on a YoY basis despite cost headwinds. Improved organic sales, productivity savings, and share repurchases are expected to drive the company’s earnings higher. An expected decline in the tax rate on a YoY basis will likely drive Procter & Gamble’s earnings. However, input cost headwinds and currency volatility could continue to hurt and restrict the bottom-line growth.

Analysts expect Procter & Gamble’s bottom line to mark double-digit growth in the fourth quarter. The company’s adjusted EPS will likely sustain a mid-single-digit EPS growth rate in fiscal 2020.