Procter & Gamble Scales New 52-Week High: What's Driving It?

On Aug 16, shares of The Procter & Gamble Company (NYSE:PG) , also referred to as Procter & Gamble or P&G, rallied to a new 52-week high of $92.95. The stock pulled back to end the trading session on Wednesday at $92.44.

This consumer goods giant, with a market cap of around $235.11 billion, has seen its shares rise roughly 10% so far this year, almost in line with the 10.3% increase for the S&P 500 over the same period. However, the company’s shares have underperformed the industry so far this year.



Although P&G shares have underperformed the industry, estimates are trending upward for the last 30 days, hinting analysts’ optimism about the company. P&G also beat earnings estimates in each of the trailing four quarters, the average beat being 4.52%.

What’s Driving P&G?

Although weak sales have been offsetting margin improvement from pricing gains and cost cuts for some time now, P&G is investing in its brands and products as well as re-designing the supply chain to boost productivity and organic growth.

This is evident from its fourth-quarter fiscal 2017 results that were released late last month. P&G’s earnings and revenues surpassed expectations in its fiscal fourth quarter. Adjusted earnings increased 8% year over year but net sales remained unchanged from the year-ago level.

The earnings growth was encouraging in light of solid organic sales growth and operating margin expansion (up 210 basis points or bps) aided by productivity cost savings (up 350 bps). SG&A expenses, as a percentage of sales, were also down 220 bps aided by cost savings.

Overall organic sales were up 2% comprising 2% volume growth. All five business segments achieved organic volume growth despite deceleration in market growth. P&G’s online organic sales also improved 30% and represent over 5% of total revenue.

The company remains focused on balanced growth through improved product, packaging, and marketing initiatives and productivity cost-saving plan. the company expects to generate up to an additional $10 billion of cost savings over the next five years (fiscal 2017-2021) in areas including supply chain and cost of goods sold or COGS, marketing and digitization, and promotional spend effectiveness.

The $10 billion cost-saving plan comprises $7 billion in COGS savings ($4.5 billion from raw and packaging materials, $1.5 billion in manufacturing savings and $1 billion from transportation/warehousing/other), $2 billion of marketing cost reductions, $1.5 billion of trade spending savings (10% efficiency), and $1–$2 billion of additional overhead reductions. This brings the total potential savings to $12–$13 billion, higher than the $10 billion level. However, P&G adjusted the level down to up to $10 billion to take into account the uncertainty associated with it, especially when projecting out several years.

The company continues to focus on product and packaging, superior execution of communications, in-store fundamentals, and consumer value. Hence, the company’s investments in promising innovation and go-to-market capabilities allow it to expand in more categories, geographies and channels, thus bolstering top and bottom-line growth.

Zacks Rank & Key Picks

Procter & Gamble currently holds a Zacks Rank #3 (Hold).

A better-ranked stock from the same sector is Unilever (LON:ULVR) N.V. (NYSE:UN) , with an expected earnings growth rate of 30.3% for 2017. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Another stock, Pilgrim's Pride Corporation (NASDAQ:PPC) , with a Zacks Rank #1, is expected to register 38.7% EPS growth this year.

Tyson Foods, Inc.’s (NYSE:TSN) EPS is expected to grow 16% this year and the stock carries a Zacks Rank #2 (Buy).

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