Pre-Q1 Earnings: To Buy or Not to Buy Procter & Gamble Stock?

The Procter & Gamble Company PG, also known as P&G, is set to report first-quarter fiscal 2025 results on Oct. 18, before the opening bell. The company is expected to have witnessed year-over-year sales and earnings growth in the to-be-reported quarter.

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The Zacks Consensus Estimate for fiscal first-quarter revenues is pegged at $22 billion, suggesting a 0.4% rise from the prior-year quarter’s reported figure. The consensus mark for PG’s fiscal first-quarter earnings is pegged at $1.90 per share, indicating 3.8% growth from the year-ago quarter. The consensus mark has been unchanged in the past 30 days.

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The Cincinnati, OH-based company has consistently delivered steady earnings, evidenced by its bottom-line beat trend over the past eight quarters. PG has a trailing four-quarter earnings surprise of 6.1%, on average, including a 2.2% surprise in the most recent quarter. With this record, the question is whether PG can sustain this momentum.

 

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Procter & Gamble this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Procter & Gamble has a Zacks Rank #3 and an Earnings ESP of -0.95%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Trends to Monitor Before PG's Q1 Earnings

Procter & Gamble has been demonstrating its dominance in the global market by leveraging its brand strength to drive organic sales growth. As a manufacturer of products catering to the daily needs of consumers worldwide, P&G's success in the preceding quarters can be attributed to its robust brand portfolio and effective business strategies. The persistence of these trends is expected to benefit the company’s organic sales for the fiscal first quarter.

PG’s organic sales for the fiscal first quarter are anticipated to have benefited from strong pricing strategies, a favorable product mix and robust segmental performances.

Our model predicts year-over-year organic sales growth of 2.7% for P&G in the first quarter of fiscal 2025. Fiscal first-quarter organic sales are expected to rise 2% for Beauty, 8% for Grooming, 1% for Health Care, 4% for Fabric & Home Care, and 3% for the Baby, Feminine & Family Care segment. For fiscal 2024, we expect organic sales growth of 3% for Beauty, 8% for Grooming, 5% for Health Care, 1% for Fabric & Home Care, and 2% for the Baby, Feminine & Family Care segment.

P&G has been diligently pursuing cost-saving and productivity measures to drive margins and reinforce its competitive advantage. The company's commitment to enhancing productivity while mitigating macro cost headwinds has been integral in maintaining balanced top and bottom-line growth. Its focus on productivity and cost-saving plans are likely to have boosted margins in the to-be-reported quarter.

We expect P&G's core gross margin for the fiscal first quarter to have been influenced by significant productivity savings. Our model predicts a year-over-year core gross margin expansion of 50 bps for the to-be-reported quarter.

However, Procter & Gamble has been facing headwinds related to the market issues in Greater China, geopolitical tensions and financial impacts from currency volatility. Amid all regions, the company’s headwinds in Greater China, relating to reduced consumer spending amid a tough macroeconomic environment, stand out.

Procter & Gamble is experiencing significant difficulties in Greater China, its second-largest market, due to tough macroeconomic conditions, resulting in reduced consumer spending. The company has been witnessing brand-specific issues for its flagship beauty brand, SK-II, influenced by its Japanese heritage. While the company expects general market trends and SK-II dynamics to improve over time, it does not foresee a return to growth in the region or for the SK-II brand for at least another quarter or two. Consequently, the company’s fiscal first-quarter sales are expected to reflect the impacts of the ongoing headwinds in China.

Also, volume trends have continued to be soft in some enterprise markets in Europe and the Asia Pacific, Middle East, and Africa countries, including Egypt, Saudi Arabia, Turkey, Indonesia, Malaysia and Russia. These regions have been particularly impacted by geopolitical tensions, which have reduced consumer spending and slowed retail activities. Moreover, the company has been witnessing continued boycotts of Western brands in the Middle East.

On the last reported quarter’s earnings call, the company expected the global environment to remain volatile and challenging going into fiscal 2025, relating to input costs, currencies, consumers, competitors, retailers and geopolitical dynamics. These are anticipated to have affected its performance in the fiscal first quarter. Our model estimates a 1.7% impact of currency headwinds for the fiscal first quarter.

Higher supply-chain costs, rising inflation and elevated transportation expenses have been leading to increased SG&A expenses for PG. We estimate core SG&A expenses to grow 2.1% year over year for the fiscal first quarter. As a percentage of sales, core SG&A expenses are expected to rise 40 bps for the fiscal first quarter.

Price Performance & Valuation

PG shares have exhibited an uptrend in the year-to-date period, rising 16.8%. The leading consumer goods company’s shares have outperformed the Zacks Consumer Staples sector’s growth of 7.6%. Meanwhile, the stock underperformed the industry’s rally of 20.2% and the S&P 500’s 22% rise.

PG's YTD Stock Performance

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The Procter & Gamble stock has rallied ahead of its key rivals Clorox CLX and Church & Dwight CHD, which grew 12.4% and 7.4%, respectively, in the same period. However, PG has underperformed Colgate-Palmolive’s CL year-to-date growth of 25.6%.

At the current price of $171.09, Procter & Gamble trades close to its 52-week high of $177.94 attained on Sept. 10. This represents a 3.8% discount to the 52-week high mark.

From the valuation standpoint, PG trades at a forward 12-month P/E multiple of 24.09X, exceeding the industry average of 23.12X and the S&P 500’s average of 22.09X. Procter & Gamble’s valuation appears quite pricey.

Given the premium valuation, investors could face significant risks if the company's future performance does not meet expectations. The consumer goods market is becoming increasingly competitive, and Procter & Gamble’s innovation and market expansion may not suffice to drive significant growth. Macroeconomic challenges and heightened competition could impede the company's ability to sustain its current growth trajectory.

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Investment Thesis

Procter & Gamble runs a strong business model with a diverse brand portfolio in home, personal and health care. Iconic brands like Tide, Gillette, Pampers and Crest enable P&G to command premium pricing, maintain market share, and compete effectively. Operating in more than 180 countries, the company benefits from a wide revenue base, tapping into growth in emerging markets and stable returns in developed regions. P&G's focus on productivity and cost-saving initiatives, including the Supply-Chain 3.0 program, is expected to boost margins despite inflation.

However, challenges in key markets like Greater China, geopolitical tensions in emerging regions and currency volatility pose financial risks. The company expects a $200-million after-tax impact on fiscal 2025 earnings per share due to exchange rate fluctuations, indicating profitability pressures.

Conclusion

As Procter & Gamble prepares to announce its first-quarter fiscal 2025 earnings, positive signs such as strong segment performance, robust pricing, a favorable product mix, and a focus on productivity and cost-saving measures are encouraging. Investors, however, will also be closely watching challenges in Greater China, geopolitical tensions and currency fluctuations before making decisions.

While P&G’s outlook remains promising, investors should avoid jumping in too quickly. Instead, waiting for the right entry point could lead to better portfolio gains. For those already holding the PG stock, staying patient is wise, as the upcoming earnings report is expected to confirm the company’s strong performance.

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Procter & Gamble Company (The) (PG): Free Stock Analysis Report
 
Colgate-Palmolive Company (CL): Free Stock Analysis Report
 
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