Procter & Gamble Cuts Costs, but Sales Disappoint

Source:Procter & Gamble

Procter & Gamble reported results for its fiscal fourth quarter before the market open today. The consumer goods giant delivered earnings growth that exceeded Wall Street's expectations, but revenue came in below consensus estimates. Investors appear to be selling on the news, with shares down about 3.5% as of noon.

Fourth-quarter operating resultsOrganic sales -- which exclude the effects of acquisitions and divestitures -- were unchanged for the quarter as lower shipment volume offset price increases.

A stronger U.S. dollar continues to take a toll on Procter & Gamble's business, with net sales declining 9% to $17.79 billion, driven by a negative-nine-percentage-point impact from foreign exchange. Wall Street had expected $17.98 billion in revenue.

However, the company continues to make progress with its cost-cutting initiatives. Gross margin improved 110 basis points (1 basis point equals one hundredth of one percent) to 49.1%, and operating margins increased 90 basis points to 18.1%.

In turn, core earnings per share, which exclude restructuring and other charges, rose 8% to $1.00. That was above the $0.95 analysts were expecting. Although it should be noted that fourth-quarter core EPS results included a $0.09-per-share benefit versus the prior year from non-operating income, primarily from gains related to minor brand divestitures.

Core earnings per share were even more impressive when viewed from a currency-neutral perspective; excluding the impact of foreign exchange, core earnings per share jumped 22%.

Full-year fiscal 2015 cash flow and capital return programOperating cash flow increased nearly 5% to $14.6 billion in 2015, and free cash flow increased more than 7% to $10.9 billion. Management continues to pass this strong cash production on to shareholders in the form of share buybacks and rising dividend payouts, with P&G repurchasing $4.6 billion of stock and paying $7.3 billion in dividends in fiscal 2015. The company also announced a 3% increase to its quarterly dividend in April, continuing its impressive streak of 59consecutive years of dividend increases.

Fiscal 2016 guidance P&G is projecting 2016 organic sales to be flat to up "low-single digits" versus fiscal 2015. However, foreign exchange is expected to have a 4% to 5% negative impact on sales growth, so management is projecting all-in revenue to be down "low-to-mid single digits."

In addition, core earnings per share are anticipated to be "slightly below to up mid-single digits" versus fiscal 2015's restated (to account for divested operations) core EPS of $3.77, as operating profit growth is expected to be largely offset by a lower non-operating income and a higher core effective tax rate.

"In fiscal 2015, P&G delivered strong, double-digit constant currency core EPS growth and very good free cash flow productivity of over 100% on modest organic sales growth," said outgoing CEO A.G. Lafley in a press release. "We made significant productivity gains and have largely executed the reshaping of our business portfolio. Going forward, our objective is to deliver balanced results across the three main drivers of operating total shareholder return -- sales growth, operating profit margin expansion and free cash flow generation. We expect continued strong cost savings and free cash flow productivity, and we are investing behind product innovation to support an improvement in top-line growth."

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