Earnings Analysis: Procter & Gamble’s Performance in Fiscal 2015
P&G’s EPS guidance versus its peers
Procter & Gamble (PG), or P&G, recently declared that David Taylor will be the company’s new CEO—effective November 1, 2015. As we discussed earlier, the company will focus on ten product categories and 65 brands. P&G expects its core EPS (earnings per share) to be restated from $4.02 to $3.77 per share due to the exit from beauty business brands.
P&G also estimates a 4%–5% negative foreign currency impact on the EPS that might affect the first half of fiscal 2016.
In its 2015 outlook, Kimberly-Clark (KMB) expects its adjusted EPS to come in at $5.65–$5.80. Clorox (CLX) expects its diluted EPS from continuing operations to be $4.68–$4.83. Both companies are expecting EPS growth compared to the previous year.
Strong cash flow productivity
P&G expects another strong year of free cash flow productivity driven by improved payables and continued steady improvement in inventory. P&G won’t include the results from its Venezuelan operations in the consolidated results. This will create a minor drag on organic sales growth trends and a $0.05–$0.06 per share headwind on core EPS.
Future growth by reshaping its portfolio
Also, P&G’s divestiture of its beauty brands to Coty (COTY) will likely improve P&G’s profitability after the exit. Coty has offered $12.5 billion for P&G’s 43 beauty brands. In addition, Duracell’s deal with Berkshire Hathaway (BRK-B) would also lead to changes in P&G’s capital structure.
As a result of these deals, P&G expects to retire about $13 million and $16 billion worth of shares through share exchange transactions. This would reduce the number of outstanding shares by ~18%, according to comments by P&G’s CFO Jon Moeller. To learn more about these deals, read Coty Buys 43 Procter & Gamble Brands: What Investors Should Know.
The company also declared that adverse foreign exchange movements will continue to be a significant sales and earnings headwind, particularly in the first two quarters. P&G’s CEO, Alan Lafley, expects to deliver strong margins—driven by another year of strong productivity-driven savings.
P&G has exposure to the iShares Core S&P 500 (IVV). It accounts for 1.20% of the total weight of the portfolio.
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