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Procter & Gamble Earnings Review

Posted on: August 5, 2008 - Email Article - Printable Version

Vinay Ayala

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Procter & Gamble [PG: 62.35, -0.45 (-0.72%)] reported fourth quarter earnings today, which highlighted exactly why staples have been one of the best performing sectors in the S&P 500 so far this year. With a global slowdown looking more and more likely as each day passes, consumer staples stocks have shown this earnings season that they can sell their products in even the toughest of economic environments. Profit rose 33% for the diversified home care and personal products maker, as soaring energy and commodity costs were offset by price increases. The company earned $3.02 billion ($0.92 per share), but excluding tax benefits, this came out to $0.80 per share, which was still above analysts estimates of $0.78 per share. They also topped estimates by posting $21.27 billion in revenue versus consensus estimates of $21.05 billion. The firm increased full year guidance by 2 cents and projected sales growth in the 7-10% range, a range that many staples companies have projected growth at. Procter and Gamble also saw strong sales growth in emerging markets, such as India, China, Russia and Turkey, as they continue to diversify their portfolio, where international sales now make up over 30% of business. While margin pressure still remains, PG is doing whatever they can to improve pricing through various cost cutting initiatives, as well as divesting low margin businesses, such as their sale of Folgers to JM Smucker [SJM: 43.84, +0.36 (+0.83%)] earlier this year.

Valuation

P/E (ttm): 19.09x
Forward P/E: 17.65x
Price/Book: 2.91x
Dividend Yield: 2.46
Operating Margin: 20.42%

All data from Reuters Online

While they have deteriorated the firm still boasts some of the best margins in the industry and the largest portfolio in the business, which is why PG should be trading at a higher multiple than its competitors like Colgate Palmolive [CL: 68.03, -1.29 (-1.86%)]. With its consistent earnings there is a strong possibility we could see multiple expansion in the future as the firm continues to grow its brand name and international exposure.

Recommendation

As I have said before and I will it say again, Consumer Staples is the place to be during this downturn as they continue to be the best performers earnings wise. I personally still prefer PG in the personal products sub-sector because of its vastly diversified portfolio, 24 brands with over $1 billion in sales per year, and strong international exposure, as the economic conditions in the US worsens. You can see in more detail here why I prefer PG, but here are the basic drivers: