J.P. Morgan Remains "Neutral" on P&G

J.P. Morgan discussed Procter & Gamble's PG FQ2 performance, noting that lower tax rates helped improve results. PG reported FQ2 core EPS of $1.13, above JP Morgan's estimates of $1.10. J.P. Morgan observes that the upside is driven by a lower tax rate, despite COGS being higher than forecast. Organic sales grew by 3%, in line with expectations, but at the low end of management estimates. Nevertheless, management has a positive outlook for the coming year, eyeing improving trends, but J.P. Morgan noted that it “would have preferred a more conservative stance from PG, especially given their performance this quarter.” J.P. Morgan maintains its “Neutral” rating and FY11 outlook. Procter's organic volume grew by 6%, as compared to 4.5% estimates, and this was primarily driven by the Beauty and Baby & Family Care Divisions. However, J.P. Morgan notes that although such performance is encouraging, it anticipates that maintaining such a high volume may become more difficult through the year. Flat pricing was better than its prior estimates, but gross margin was 90 bps below expectations. J.P. Morgan expects the stock to react negatively over the next few days due to the 3% organic sales growth and the weak margins. PG is currently trading at $64.20.