Earnings Preview: Margin pressure could weigh on Procter & Gamble in Q2

The Procter & Gamble Company (PG) is scheduled to report its earnings results for the second quarter of 2019 on Wednesday, January 23, before market opens.

Analysts expect the company to report earnings of $1.21 per share, which would reflect a year-over-year increase of 1.7%. Revenues are expected to decline 1.1% to $17.1 billion. The company has consistently surpassed earnings estimates for several quarters in a row and can be expected to continue this trend.

In the second quarter, P&G is likely to see healthy sales growth in its Beauty segment. The company has been trying to expand its portfolio to improve sales and during the quarter, it completed the acquisition of Merck’s consumer health business, which will help it widen its geographic presence and improve its product offerings.

This acquisition will provide P&G with a wide range of OTC products and will help broaden its footprint in several new markets, strengthening its healthcare business. P&G also acquired Walker & Company during the period and the contribution from this acquisition is something to keep an eye on. However, weaknesses in P&G’s other segments might weigh on its sales results for the quarter.

Robust beauty sales boost P&G earnings in Q1; stock gains 5%

P&G is taking steps to revamp its product offerings as well as reduce costs. The company’s margins are under pressure and the increased costs from investments to improve products and drive growth are hurting margins. Negative impacts from currency fluctuations remain a threat to margins. The firm’s efforts to cut costs coupled with price increases could help improve margins.

For the first quarter of 2019, P&G topped earnings estimates, with an adjusted EPS growth of 3%. Net sales remained relatively flat with the year-ago period. For the full year of 2019, the company provided an outlook for organic sales growth of 2-3% and core earnings growth of 3-8%.

Looking at the past three months, P&G’s shares have climbed 12% but over the past one month, the stock has dropped 2%.

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