* Reports Q2 2020 results on Thursday, January 23, before the market opens
* Income expectation: $ 18.42 billion
* EPS expectation: $ 1.37
The shares of the global consumer giant Giant Procter & Gamble (NYSE 🙂 have had a great 2019. Investors sent the shares up to a record high after five consecutive quarters of explosive growth and the company built in strong expectations for the current year.
That remarkable series of strong sales is likely to continue when the maker of Pampers diapers and Gillette razors reports his 2Q fiscal 2020 tomorrow morning. Analysts expect an average profit of $ 1.37 on sales of $ 18.42 billion.
In anticipation of another outburst quarter, the shares of & # 39; the world's largest producer of household products reached a record high of $ 127 on Friday. The share closed at $ 126.09 yesterday, an increase of about 38% in the past year .
Over the past two years, P&G, whose other brands have many well-known names such as Dawn dishwashing detergent, Bounty paper towels and Crest toothpaste, has continued to grow sales, helped by innovation, marketing and a simplified organizational structure.
In October, the company reported that organic sales, which exclude issues such as acquisitions and currency fluctuations, increased by 7% in the fiscal first quarter, demonstrating that momentum persists after agreeing with the fastest organic sales growth of the previous quarter in more than a decade.
But the growth rate that P&G is showing is unusual for a company that produces daily consumer goods in categories where competition is fierce and margins are low. From a large consumer giant like P&G it would not be fair to expect a blow-out quarter every time.
In the same period, Kleenex and Huggies maker Kimberly-Clark (NYSE 🙂 reported organic sales growth of 4%, while Reckitt Benckiser (1945) (LON 🙂 UK-based maker of Lysol disinfectants and Woolite detergent, reported disappointing organic growth of just 1.6%.
Lofty Valuations?
These concerns have led some investors to question the high valuations of P&G and the potential to turn further upside down after such a fast and powerful rally.
Today, P&G is trading with 24 times term gains compared to its five-year average of around 20. In the past decade, the stock has never characterized a forward gain beyond this large.
These concerns may apply to short-term investors, but we believe that measuring P&G stock performance based on these statistics does not provide a true picture of the growth potential of the company. What drives price gains is the company's success in its turnaround strategy to meet changing consumer needs, as well as its ability to stay ahead of its competitors.
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 – which involved more than $ 10 billion in costs.
These measures clearly help the company look for higher prices for its products despite a very benign inflationary environment. 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, allowing prices to rise between 4% -10% on products, including the Pampers, Bounty, Charmin and Puffs brands.
Bottom Line
P&G shares remain our favorite choice from the packaged consumer goods companies. It is one of the largest dividend payers in the US – with an annual distribution of $ 2.98 per share for a return of 2.36% – 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 back on track, investors must expect more substantial dividend increases. We see little reason to leave this powerhouse of the consumer, even if his stock goes through some weakness.
