Can Procter & Gamble (PG) Pull A Surprise In Q1 Earnings?

The Procter & Gamble Company (NYSE:PG) is set to report first-quarter fiscal 2017 results on Oct 25, before the market opens. Last quarter, it posted a positive earnings surprise of 6.76%.

In fact, despite sales remaining subdued, the consumer goods company posted positive earnings surprises in the past four quarters, with the average surprise being 5.83%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Procter & Gamble operates in a challenging environment where market growth rates are constantly decelerating, mainly due to slow growth in developing markets. The company has been struggling to boost its sales. Significant negative Fx impact, weak volumes, divestures and slowing market growth have been hurting sales.

Foreign exchange is a major headwind for Procter & Gamble with around 60% of the company’s business being outside North America. Foreign exchange impacted the company’s revenue growth by 6% in both fiscal 2015 and 2016. While the company expects Fx to be a nominal headwind for fiscal 2017, it is likely to dent results in the first quarter.

As stated in the fourth-quarter earnings call, Procter & Gamble’s fiscal 2017 results are expected to be similar to the fourth quarter. The company expects fiscal 2017 sales growth of about 1%, including a 1-point impact from foreign exchange and divestitures. Organic sales growth is expected at around 2%. Earnings per share growth will likely be in the mid-single digits.

Pricing gains, productivity savings and lower overhead costs should provide bottom-line support despite top-line pressures like in the past quarters.

For the fiscal first quarter, the Zacks Consensus Estimate for earnings is pegged at 98 cents, flat year over year. Meanwhile, the consensus estimate for revenues is $16.46 billion, implying a 0.38% decline.

Earnings Whispers

Our proven model does not conclusively show that Procter & Gamble is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Procter & Gamble is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at 98 cents.

Zacks Rank: Although Procter & Gamble’s Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Some stocks in the consumer staples sector that have both a positive Earnings ESP and a favorable Zacks Rank include:

The Coca-Cola Company (NYSE:KO) , slated to report third-quarter 2016 results on Oct 26, has an earnings ESP of +2.08% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mondelez International, Inc. (NASDAQ:MDLZ) has an earnings ESP of +2.33% and a Zacks Rank #3. The company is scheduled to report third-quarter 2016 results on Oct 26.

Avon Products Inc. (NYSE:AVP) has an earnings ESP of +33.33% and a Zacks Rank #1. The company is scheduled to report third-quarter 2016 results on Nov 3.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>