What's In Store For Procter & Gamble (PG) In Q2 Earnings?

The Procter & Gamble Company (NYSE:PG) is set to report second-quarter fiscal 2018 results on Jan 23, before market open. Last quarter, the company delivered a positive earnings surprise of 1.87%.

This consumer goods company delivered a positive earnings surprise in each of the trailing four quarters, the average beat being 3.72%.

Factors to Consider

Procter & Gamble has been struggling to boost sales for the last few years. Weak volumes and slowing market share growth have been hurting its sales. Soft consumer-spending environment in developed markets, particularly in the United States and the United Kingdom, also adds to the worries. Overall, the soft category growth rate in developed countries and higher competition in the United States like Dollar Shave Club and Harry’s Razor in the male grooming category is likely to hurt the company’s razors and blades’ sales. Again, lower pricing owing to increased competition in the shave care category and higher commodity costs are added woes.

That said, this conglomerate remains focused on balanced growth through improved product, packaging, and marketing initiatives in order to boost sales.

Although the company did not provide any sales guidance for the fiscal second quarter, Procter & Gamble remains positive and expects new product launches to improve sales in fiscal 2018. Its innovation-led products like premium Olay and SK-II products are creating higher demand and the trend is likely to follow in the to-be-reported quarter as well. Procter & Gamble anticipates 3% growth in sales for the year. Organic sales are expected in the range of 2-3% (read more: Will New Products Lift Procter & Gamble's Q2 Sales?).

Overall, for the fiscal second quarter, the Zacks Consensus Estimate for total revenues is pegged at $17.34 billion, reflecting a sequential growth of 4.1%. Revenues of the company are likely to increase 2.9% year-over-year.

Despite muted sales growth, the company has exceeded analysts’ expectations for the 10th consecutive quarter. Procter & Gamble has managed to post higher earnings despite tepid sales owing to productivity and cost-saving plans in order to boost margins, thereby lifting profit level.

However, the company failed to expand margins in the last two reported quarters, as productivity savings were more than offset by headwinds such as increased commodity costs, unfavorable geographic and product mix, and product reinvestments. Then again, the company’s focus on reducing its SG&A (selling, general, and administrative) costs and lowering its marketing and advertising spending has helped it in supporting its operating margins to some extent. The trend is unlikely to change in the to-be-reported quarter as well.

Overall, for the to-be-reported quarter, the company’s margins are likely to remain subdued due to higher input costs that have heightened further by the recent hurricanes. The company expects higher commodity costs, including pulp, kerosene, ethylene, and propylene, to adversely impact its profitability by $300 million in fiscal 2018.

Again, unfavorable mix and lower pricing in the shave care category is likely to impact margins further. Procter & Gamble’s investing in price to drive sales of its razors and blades, due to increased competition from shave clubs, have affected its market share. Yet, productivity savings and share repurchases will partly offset these woes (read more: How Procter & Gamble's Margins Will Shape Up in Q2).

For the fiscal second quarter, the Zacks Consensus Estimate for earnings is pegged at $1.15, reflecting a growth of 6.5% year over year.

Here is what our quantitative model predicts.

Procter & Gamble has the right combination of ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Procter & Gamble is +0.87%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Procter & Gamble carries a Zacks Rank #3 (Hold). Notably, we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Procter & Gamble Company (The) Price and EPS Surprise

Procter & Gamble Company (The) Price and EPS Surprise | Procter & Gamble Company (The) Quote

Stocks to Consider

Here are a few companies in the Zacks Consumer Staples sector that can be considered, as our model shows that they have the right combination of elements to post an earnings beat in their upcoming releases.

Colgate-Palmolive Company (NYSE:CL) has an Earnings ESP of +0.13% and a Zacks Rank #3. The company is slated to report quarterly results on Jan 26.

Coca-Cola European Partners plc (NYSE:CCE) has an Earnings ESP of +0.82% and a Zacks Rank #3. The company is scheduled to report quarterly results on Mar 20. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Estée Lauder Companies Inc. (NYSE:EL) has an Earnings ESP of +0.56% and a Zacks Rank #2 (Buy). The company is slated to report quarterly results on Feb 2.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>