Investors were expecting steady results out of Procter & Gamble's (NYSE: PG) latest earnings release --and that's exactly what they got. On Tuesday, the consumer products titan revealed that its sales growth was a meager 2% in the fiscal second quarter and profitability declined.
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Following the earnings announcement, Chief Financial Officer Jon Moeller held a conference call with Wall Street analysts to add context to the headline numbers. Here are a few highlights from that chat (all quotes are Moeller's).
Modest market share losses
Organic sales grew more than 2%, an acceleration of more than a point from last quarter.
Sales growth sped up to a 2% rate from 1% in the prior quarter. And, while that pace was better than the flat result that rival Kimberly Clark managed, it wasn't high enough to end P&G's multiyear market share slide. Instead, management said the company held or expanded share in 27 of its 50 largest product segments. The good news is, for the categories that lost ground, P&G's rate of decline moderated. Executives called that "a positive step toward returning to growth."
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Mainline tape diapers in China are a challenge. We've made tough choices to improve our position in grooming. We face highly capable competitors who continue to innovate their products and business models.
The U.S. shaving market and the China diaper market were two of the biggest challenges that management cited as reasons for P&G's unusually weak pricing performance this quarter. Selling prices dove 4% in grooming thanks to the cuts management took in the Gillette franchise.
Altogether, prices fell in four of its five core categories, with the beauty segment's flat result comprising its best result. Combined with rising commodity costs, this trend explains why profitability fell during the quarter.
Fiscal year to date our e-commerce sales growth is up nearly 40% with all of our top markets in 8 out of 10 product categories growing or holding market share.
The digital sales channel was a bright spot, with revenue continuing to rise at the 40% pace P&G logged last year. P&G is in some ways finding it easier to market and sell its products online than in retail settings.
In fiscal 2017, the e-commerce business passed $3 billion, and management is aiming to push it to $4.5 billion this year, or almost 7% of overall sales.
Tax changes help
All told, the core earnings benefit of the Tax Act is about $135 million in the December quarter and for the fiscal year. The benefit will more than double to about $300 million in fiscal 2019 and double again to about $600 million per year on an ongoing basis.
The recent tax law changes will help P&G's business in a few ways, but the bottom-line benefits will be higher earnings and increased cash flow going forward, management said. The company must take a large, non-cash charge with respect to past earnings it has held overseas. This outflow is more than offset by favorable adjustments though, including reduced taxes that P&G's international affiliates will have to pay when licensing intellectual property from the company.
We're maintaining the organic sales growth guidance range of 2% to 3%. We expect fiscal 2018 all-in sales growth of around 3%. We're raising the top end of our core earnings per share guidance range shifting from a range of 5% to 7% to a range of 5% to 8%.
P&G affirmed its sales forecast, which predicts sales growth will speed up slightly from last year's 2% uptick. That's an optimistic goal, considering it would require accelerating revenue gains over the next two quarters despite the weak selling environment.
Whether or not management hits that target, shareholders can thank the tax law changes for boosting their direct cash returns this year. P&G raised its stock buyback spending plans and now aims to send between $13.5 billion and $15.5 billion to investors through dividends and share repurchases, up from their prior $13 billion goal.
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