Procter & Gamble (PG) Q4 Earnings: What's In The Cards?

We expect The Procter & Gamble Company (NYSE:PG) to beat expectations when it reports fourth-quarter fiscal 2016 results on Aug 2, before the opening bell.

Last quarter, the company delivered a positive earnings surprise of 6.17%.

Despite sales remaining subdued, the consumer goods company delivered positive earnings surprises in the past four quarters with an average surprise of 5.73%.

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

Why a Likely Positive Surprise?

Our proven model shows that P&G is likely to beat earnings because it has the right combination of two key components required for a beat.

Zacks ESP: P&G’s Earnings ESP, which represents the difference between the Most Accurate estimate (77 cents per share) and the Zacks Consensus Estimate (74 cents), stands at +4.05%. This is meaningful and indicates a likely positive earnings surprise.

Zacks Rank: P&G has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. Conversely, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.

The combination of P&G’s Zacks Rank #3 and +4.05% ESP makes us confident of an earnings beat.

What's Driving the Better-than-Expected Earnings?

P&G 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 grow sales. Significant negative Fx impact, weak volumes, divestures and slowing market growth have been hurting sales.

P&G anticipates fiscal fourth-quarter core earnings to be 32% lower than the prior year due to a combination of increased advertising investments, a higher tax rate, headwinds from foreign exchange and lower non-operating income. Venezuelan deconsolidation and minor brand divestitures are expected to impact sales by 0.3% and 1%, respectively in the fourth quarter.

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

Stocks to Consider

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

Dr Pepper Snapple Group, Inc. (NYSE:DPS) with an Earnings ESP of +0.84% and a Zacks Rank #3.

Tyson Foods, Inc. (NYSE:TSN) with an Earnings ESP of +0.94% and a Zacks Rank #3.

Post Holdings, Inc. (NYSE:POST) with an Earnings ESP of +12.50% and a Zacks Rank #3.