* Reports Q1 2020 results on Tuesday, October 22 before the open
* Revenue expectation: $ 17.46 billion
* EPS expectation: $ 1.23
After seeing four consecutive quarters of explosive growth, investors have built in strong expectations of Procter & Gamble (NYSE 🙂 before the fiscal first quarter on Tuesday.
In this profit season, the shares of & # 39; the world's largest producer of household products have increased by 45% in the last 12 months, significantly better than its competitors and the benchmark index.
Procter & Gamble price chart
In July, the maker of Dawn dishwashing detergent, Bounty paper towels, and Crest toothpaste reported his best quarter of organic sales in more than a decade, helped by strong demand for her beauty and healthcare products.
Organic revenue growth, including items such as acquisitions and currency effects, expanded a higher than expected 7%, far beyond the growth of 1% last year. The company exceeded its target of 4% organic revenue growth for the fiscal year by a full percentage point.
What drives these price gains is the success of the company in its turnaround strategy to cope with changing consumer needs and smaller competitors. The demand for P&G shares also rose this year as investors shifted their funds to equities that offer security in turbulent economic times.
Under Chief Executive Officer David Taylor, P&G, based in Cincinnati, reduced the number of brands from 175 to 65, targeting the 10 product categories where the margin is highest. In the course of that process, the company also eliminated 34,000 jobs through a combination of brand sales and buyouts, as well as factory closures – reducing more than $ 10 billion in costs.
Vulnerable for sale?
From a large consumer giant like P&G it would not be fair to expect a burst quarter every time, and the risk of underperformance makes its shares vulnerable to a certain selling value in the event of a negative profit surprise.
Another factor that can extract some of the steam from P&G shares is that, due to its defensive nature, it has attracted a lot of cash this year as fear of a global recession grew amid the trade war between the US and China. Once that dispute is settled, or the risks to growth decrease, investors can once again shift their funds to riskier assets, thereby damaging P&G shares.
Having said that, we still find P&G to be a large long-term investment for investors seeking income, given the company's successful response to the declining loyalty of consumer brands. For example, the beauty segment saw organic sales increase by 8% thanks to the strong results of the SK-II and Olay skincare brands.
The other reason to be optimistic about P & G's outlook for the next financial year is that consumers are willing to pay more for the company's products. P&G started phased price increases last summer after not reviving growth by doing the opposite. The shift in pricing strategy will be completed in February, which could increase prices between 4% -10% on products, including the Pampers, Bounty, Charmin and Puffs brands.
Bottom Line
P&G shares remain our favorite choice for investors looking for income. It is one of the largest dividend payers in the US – with an annual distribution of $ 2.98 per share for a return of 2.6% – and a track record that is hard to match. The maker of Pampers diapers has increased his payout for 62 consecutive years.
Now that growth is on the right track again, investors must expect more substantial dividend increases and we see little reason to abandon this superpower of consumers, even if the shares of this region become weak.
