Procter & Gamble Sees Organic Growth in All Divisions

08/03/2016 9:14 am EST

Focus: STOCKS

Michael Berger

President & Founder, Technical420.com

In its first quarter under a new chairman, Procter & Gamble beat Wall Street’s earnings and sales expectations as every division grew organically. Michael Berger, Associate Editor of MoneyShow.com, highlights the results and discusses why he sees upside to the current price of shares.

Procter & Gamble (PG) surprised the market yesterday after reporting better-than- expected profit and revenue for its fiscal-fourth quarter. This was the company’s first earnings report under its new CEO David Taylor who was named chairman on July 1st.

P&G has been a leader in the global household and personal health care industry for decades via its portfolio of more than twenty billion-dollar brands that includes like Tide, Pampers, and Crest.

Moving in the Right Direction

P&G has shown that it is moving in the right direction under its new CEO from an organizational simplification and additional cost savings standpoint. The company earned $0.79 a share on $16.1 billion in revenue in the most recent quarter. P&G was expected to report earnings of $0.74 a share on $15.8 billion in revenue.

Although P&G beat expectations, its net revenue fell 2.8% when compared to the same period last year. The company has recently struggled to grow revenue and to develop products large enough to move the needle at the company. One strategy that worked for P&G during the fourth-quarter was its cost-cutting efforts which are making the company more financially flexible.

CFO Jon Moeller said the company is targeting another $10 billion in cost cuts over the next five years, much of which will be reinvested to drive top-line growth.

Reports Company-Wide Organic Growth

P&G saw the strongest organic volume growth in its health-care segment which increased by 5%. The growth was the result of a more robust marketing campaign focused on its oral care and personal health care products such as Crest, Oral-B, and Vicks.

Every segment reported an increase in organic volume growth. P&G’s beauty segment grew 1%. Its grooming, fabric and home care, and its baby, feminine and family care division grew 2% each.

P&G also reported revenue growth from its China division during the most recent quarter. The division is the second-largest in terms of sales and profit and the revenue growth is significant because revenue declined 8% in the fiscal second quarter and 4% in the fiscal third quarter.

CEO Taylor expects the China division to see more innovation designed specifically for that country in the next 12 to 18 months.

Outlook is Bright but Faces Headwinds

P&G is projecting 2% organic sales growth in fiscal 2017, but the company will likely face headwinds from a stronger dollar, turmoil in EU, and brand divestitures.

We expected it to take longer for the change at the helm to translate into organic sales growth and improving market share but CEO David Taylor is off to a great start. Although we are excited about P&G’s recent successes, it is too early to say the accelerated organic growth is sustainable.

We view P&G as one of the best dividend growth stocks in the market and we are very favorable on its long-term outlook. P&G has seen its shares rally more than 9% this year and we see further upside to current levels. If P&G can string together a few better-than-expected quarterly results, the shares should continue to climb and trade at new all-time highs.

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