Procter Gamble: Q1 Earnings Could Drive Its Stock

  • Procter & Gamble is scheduled to announce its first-quarter earnings on October 22.
  • So far, the stock has fallen 6% in October.
  • We expect the company to sustain the growth momentum in the first quarter.

Procter & Gamble’s Q1 earnings

Procter & Gamble (PG) is scheduled to announce its earnings for the first quarter of fiscal 2020 before the markets open on Tuesday. Overall, we think that the company will continue to post impressive organic sales and earnings growth.

The pressure on the company’s margins will likely ease, which should boost its earnings. Notably, Procter & Gamble stock has fallen 6% in October. The pullback in the stock gives investors an opportunity to buy the stock before the earnings.

Meanwhile, Procter & Gamble posted impressive organic sales and earnings growth in the previous fiscal year. The company’s organic sales growth accelerated in the second half of the year. The fourth-quarter organic sales rose 7%, which is exceptional.

We expect balanced growth in volumes and pricing to continue to drive Procter & Gamble’s organic sales in the first quarter. Moderation in commodity costs and strength in the base business will likely boost the company’s margins. Higher organic sales, margin expansion, and a lower outstanding share count should drive the earnings. Notably, Procter & Gamble’s bottom line has outperformed the consensus estimates for 17 consecutive quarters, which is encouraging.

Procter & Gamble stock has risen 27.8% YTD (year-to-date) as of October 18. The stock has outperformed broader markets and its peers in terms of returns. In comparison, the S&P 500 has risen 19.1% YTD. Kimberly-Clark (KMB), Colgate-Palmolive (CL), and Church & Dwight (CHD) have risen 20.4%, 14.3%, and 12.4%, respectively.

Analysts’ consensus estimate

Analysts expect Procter & Gamble to post revenues of $17.42 billion—up 4.4% YoY. The projection indicates a sequential acceleration in the revenue growth rate. Growth in organic sales and continued momentum in the beauty segment will likely drive the company’s sales.

Growth in the base business, moderating commodity costs, and productivity savings will likely support Procter & Gamble’s margins in the first quarter.

Higher sales, margin expansion, and an expected decline in the tax rate could lead to better-than-expected first-quarter earnings. Analysts expect Procter & Gamble to post a core EPS of $1.24, which implies growth of about 11% YoY.

Besides Procter & Gamble, Kimberly-Clark will also report its quarterly earnings on Tuesday. Analysts expect Kimberly-Clark to post revenues of $4.65 billion in the third quarter. Higher pricing and a favorable mix will likely drive the company’s sales. Meanwhile, analysts expect the company to post an adjusted EPS of $1.80, which reflects mid-single-digit growth on a YoY basis.