Procter & Gamble (PG 86.55, +6.31, +7.86%) has broken out to an
eight-month high after the company reported its best organic sales growth in
First quarter results were better than expected on the top and bottom line. Core EPS grew 3% to $1.12 while sales were flat at $16.7 bln due to a 3% foreign exchange headwind from the strong U.S. dollar.
Most importantly, organic sales growth accelerated to 4% from 1% in the fourth quarter of fiscal 2018. Volume grew 3% for the second straight quarter while pricing had a neutral impact after weighing on sales for three consecutive quarters.
The big sequential improvement came from the grooming segment, where organic sales grew 5% versus a 1% decline last quarter. Shave care organic sales increased mid-single digits as the company started to lap price cuts for Gillette products.
The Beauty segment remained strong, growing organic sales 7% for the second quarter in a row. The other three segments all showed sequential improvement as well: Fabric & Home Care organic sales grew 5%, Health Care organic sales grew 4% while Baby, Feminine & Family Care organic sales fell 1%.
Looking at margins, core gross margin fell 150 basis points, or 90 basis points excluding a 60 basis points foreign exchange (FX) headwind, as 170 basis points of productivity savings were more than offset by 100 basis points of commodity cost increases and 160 basis points of unfavorable product mix, investments, and other impacts. Encouragingly, core operating margin increased 50 basis points (excluding 130 basis point FX headwind) with total productivity cost savings of 250 basis points for the quarter.
Procter & Gamble reaffirmed its outlook for 3-8% core EPS growth, which includes a $1.3 bln headwind from FX and higher commodity costs. EPS is expected to grow 11-16% excluding FX and restructuring charges. The company reaffirmed guidance for 2-3% organic sales growth excluding a 3-4% FX headwind.
P&G is the largest pure-play consumer packaged goods company in the United States. The stock is leading the Consumer Staples Sector (XLP +2.32%) higher today.
With a $215 bln market value, the stock trades at ~19x EPS estimates, which is in-line with the industry average.
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