P&G Tides Over Macro Challenges: Can It Survive In 2015?

On Dec 12, we issued an updated research report on The Procter & Gamble Company PG.

P&G reported first-quarter fiscal 2015 results on Oct 24. The consumer goods giant missed the Zacks Consensus Estimate for both earnings and sales due to significant currency headwinds.

However, excluding currency headwinds, earnings of $1.07 per share increased 9% backed by pricing and mix gains and productivity savings. Organic revenues went up 2%, as better pricing made up for the softer volumes. Moreover, despite a challenging operating environment, the maker of Tide detergent and Pampers diaper maintained the fiscal 2015 outlook.

P&G enjoys strong fundamentals including solid brand recognition, diversified portfolio, aggressive cost-savings program, rapid growth in developing nations, impressive product development capabilities and marketing prowess

Further, P&G's strategy of divesting around 100 underperforming brands to concentrate better on fewer core strategic brands sounds encouraging. We believe that a smaller and more focused company would be able to grow faster, create more value and be much easier to manage.

In keeping with the plan, P&G sold off its American and Asian pet care business to Mars, Inc. in July and in September entered into an agreement to sell the European pet care business to Spectrum Brands Holdings, Inc. SPB. Moreover, the company has signed a deal to divest its Duracell batteries business to Berkshire Hathaway, Inc. (BRK.B) in exchange for Berkshire's equity stake in P&G. Both the Spectrum Brands and Duracell deals are expected to close in fiscal 2015.

However, these structural changes and other initiatives to improve organic growth are yet to translate to top-line improvement.

Moreover, slowing global market growth, strong currency headwinds, market level challenges in the Ukraine, Russia and the Middle East, Venezuela, Argentina and Hong Kong, and rising commodity costs have made the operating environment challenging, which might contain P&G's growth.

Stocks to Consider

P&G carries a Zacks Rank #3 (Hold). A better-ranked company in the same sector is The Clorox Company CLX which carries a Zacks Rank #2 (Buy).