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Procter & Gamble Q2 Profit May Top Street

 January 23, 2013 03:46 PM

(By Mani) Consumer packaged goods giant Procter & Gamble Co. (NYSE: PG) may report better-than-expected second-quarter results on Jan.25 on improved organic sales and lower commodity costs.

Ohio-based P&G, whose two dozen brands are billion-dollar sellers, including Always, Braun, Crest, Fusion, Gillette, Head & Shoulders, Mach3, Olay Shampoo and Tide Detergents. The company competes with Unilever (NYSE: UL) and Kimberly-Clark Corp. (NYSE: KMB).

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For the past two quarters, P&G has been witnessing improved productivity, better organic sales growth, and lower commodity cost headwinds, and the trend is expected to continue in to the second quarter.

For the second quarter of fiscal 2013, the company expects core earnings in the range of $1.07 to $1.13 a share. It projects a revenue range between negative 1 percent to a positive 1 percent. Organic sales are expected to grow between 1 percent and 3 percent. Foreign exchange is expected to hurt revenue growth by 2 percent while pricing is expected to add 2 percent to sales growth.

Wall Street expects P&G to earn $1.11 a share, up from $1.10 a share reported in the same quarter last year. The company's earnings have topped Street estimates in the preceding four quarters, and the consensus estimate grew 1 cent over the last 90 days.

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The company is expected to generate sales of $21.89 billion, a 1.1 percent drop from $22.14 billion in the year-ago period.

P&G, whose organic growth has been trailing peers for most of the last half decade, has been embarking on a restructuring plan announced last year. The plan focuses on launching 20 new products, targeting 10 leading developing markets and cost control measures. Moreover, the plan is expected to save up to $10 billion by 2016.

After several quarters of negative growth, the US turned positive last quarter, a welcome sign, but investors likely need to see consistent sequential progress to get excited about this business that represents about 60 percent of the total company EBIT.

Without the US growing low to mid single digits, it is prohibitively difficult for P&G to grow above its multinational peers, many of whom have much larger developing markets exposure. Moreover, US price gaps remain stubbornly wide in top P&G categories and average since 2009 had barely moved from 32 percent to 31 percent.

Meanwhile, P&G has slowly been shifting its center of gravity away from slower-growing developed markets towards faster growing emerging markets in Asia, Central Europe, Africa and Latin America.

However, developing markets exposure still lags many peers, and P&G must commit to further moving its resources to take advantage of this opportunity. So, investors will look for comments on its emerging markets expansion.

Out of 23 analysts covering the stock, 12 have a rating of "strong buy" or buy," while 11 analysts recommend "hold." There are no "sell" ratings on the stock. The stock,which has a P/E ratio of 18, has gained about 9 percent in the last one year and has been trading between $59.07 and $70.99 during the past 52-weeks.



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