Procter & Gamble Co. (PG) registered disappointing fourth quarter 2010 net earnings from continuing operations of 71 cents a share, which dipped 5% from 75 cents posted in the year-ago period. Earnings also missed the Zacks Consensus Estimate of 73 cents.
However, P&G’s net earnings from continuing operations in fiscal 2010 surged 4% to $3.53 per share from $3.39 delivered in fiscal 2009, though well below the Zacks Consensus Estimate of $4.12 per share. The upswing came on the back of sales growth, expansion of operating margin and share buybacks, partly offset by higher tax rate.
From a year ago, core earnings per share in the quarter plunged 9% to 71 cents in the quarter, but climbed 6% to $3.67 in the reported year.
Procter & Gamble forecasts first-quarter 2011 net earnings from continuing operations and core earnings to be in the range of 97 cents to $1.01 per share, reflecting a 0%–4% growth rate. The guidance implies that P&G will continue to invest in innovation and various marketing program.
For fiscal 2011, the company anticipates net earnings from continuing operations and core earnings to be in the range of $3.91–$4.01 per share, 11%–14% growth on a continuing operations basis and 7%–9% growth on a core basis.
Revenue and Margins
On a year-ago basis, P&G’s net sales advanced 5% and 3% to $18,926 million and $78,938 million in the fourth-quarter and fiscal 2010, respectively. But both quarterly and yearly revenues missed the Zacks Consensus Estimate of $19,108 million and $79,111 million, respectively. Excluding the impact of acquisitions, divestitures and foreign exchange, organic sales progressed 4% and 3%, respectively, in the fourth-quarter and fiscal 2010. All three global business units (GBU) witnessed net sales growth during the quarter.
On the back of a solid innovation program and marketing investment, the company reported unit volume growth throughout fiscal 2010. Quarterly volume grew 8%, indicating the fastest organic growth in the last 22 quarters.
Procter & Gamble, the leading manufacturer and seller of consumer goods, projects net sales and organic sales to inflate 2%–4% and 4%–6%, respectively, in fiscal 2011. The company predicts net sales will grow 1%–3% in the first quarter. Based on solid volume momentum, partially offset by product mix and pricing, the company expects organic sales to move up at a 3%–5% rate in the first quarter.
Both first quarter and fiscal 2011 net sales are expected to benefit about 1% from the impact of acquisitions and divestitures, but offset by 3% due to negative currency translation.
The quarterly operating margin contracted 310 basis points (bps) to 15.6%, compared with 18.7% in the year-ago quarter, primarily due to a 360 bps increase in selling, general and administrative expenses (SG&A) as a percentage of net sales, partially offset by a 50 bps gross margin expansion.
However, operating margin expanded 30 bps annually in fiscal 2010, attributed to a gross margin expansion of 250 bps, offset by a 220 bps increase in the SG&A as a percentage of net sales.
Other Financial Updates
Procter & Gamble exited the year with cash and cash equivalents of $2,879 million and long-term debt of $21,360 million. The company spent 3.9% of net sales as capital expenditures.
The company continues to enhance shareholders’ returns by spending $6.0 billion on share repurchases. Moreover, the company increased its quarterly dividend by 9.5% in April 2010.
Operating cash flow for fiscal 2010 jumped 8% year over year to $16.1 billion. The company generated adjusted free cash flow of $14 billion in the year.
Based in Cincinnati, Ohio, Procter & Gamble shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. Our long-term recommendation for the stock also remains Neutral.
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