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No Surprises At Procter & Gamble
Procter & Gamble (NYSE: PG), the world's largest household products maker, earned $3.3 billion, or $1.06 per share for its fiscal first quarter ending Sept. 30. Unlike most earnings today, P&G's bottom line actually beat the comparable quarter last year. True to form, however, those profits came on the heels of reduced sales of 6 percent. Overall, the numbers again give hope that our economy is slowly crawling out of this recession. Last week, the folks at Caterpillar (NYSE: CAT) commented that the worst days for the company during this recession may now be behind it.
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Remember, This Is P&G
Remember that this is the largest consumer products company in the world. Most of the things it makes are essential goods to households. Also, P&G operates all over the world, so it benefits from international markets. So what is good for P&G may not translate to a wonderful business environment for everybody else. On the plus side, P&G does compete with companies that generate substitutes, so the relatively stable quarter indicates a job well done by management. (For more, check out Spotting Cash Cows.)
Having said this, cost cuts also played a role, just like they have across the board for many companies. What has Mr. Market so excited, as always, is the full-year guidance in which the company indicated sales would be better than previously anticipated. Organic sales should be up 2% to 4%, aided by price increases that will offset a 1% volume decline. Net sales should be up 6%, increasing EPS to $4.02 to $4.12. The shares were up 4% on the news.
Let's See How The Other Chips Fall
The generally upbeat forecasts by companies like Caterpillar and Procter & Gamble confirm that the worst may be over. But that's not saying that the good times are here, either. It's saying that folks are still buying razor blades and laundry detergent. Consumer confidence is still low, and unemployment continues to keep everyone fearful. The fact that a company like Target (NYSE: TGT) or Johnson & Johnson (NYSE: JNJ) can report favorable numbers is more a testament to the specific business, and not to the overall economy. (For more, see A Guide To Consumer Staples.)
With the holiday season coming up, we will get to really see how consumers are feeling about the upcoming year and the future.
Bottom Line
Overall, it's a big positive for the economy to have businesses as entrenched as P&G come out with a favorable outlook. It shows that folks are at least spending something. Also, economies recover in steps, and you have to start with the basic goods first.
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IN PICTURES: 20 Tools For Building Up Your Portfolio
Remember, This Is P&G
Remember that this is the largest consumer products company in the world. Most of the things it makes are essential goods to households. Also, P&G operates all over the world, so it benefits from international markets. So what is good for P&G may not translate to a wonderful business environment for everybody else. On the plus side, P&G does compete with companies that generate substitutes, so the relatively stable quarter indicates a job well done by management. (For more, check out Spotting Cash Cows.)
Having said this, cost cuts also played a role, just like they have across the board for many companies. What has Mr. Market so excited, as always, is the full-year guidance in which the company indicated sales would be better than previously anticipated. Organic sales should be up 2% to 4%, aided by price increases that will offset a 1% volume decline. Net sales should be up 6%, increasing EPS to $4.02 to $4.12. The shares were up 4% on the news.
The generally upbeat forecasts by companies like Caterpillar and Procter & Gamble confirm that the worst may be over. But that's not saying that the good times are here, either. It's saying that folks are still buying razor blades and laundry detergent. Consumer confidence is still low, and unemployment continues to keep everyone fearful. The fact that a company like Target (NYSE: TGT) or Johnson & Johnson (NYSE: JNJ) can report favorable numbers is more a testament to the specific business, and not to the overall economy. (For more, see A Guide To Consumer Staples.)
With the holiday season coming up, we will get to really see how consumers are feeling about the upcoming year and the future.
Bottom Line
Overall, it's a big positive for the economy to have businesses as entrenched as P&G come out with a favorable outlook. It shows that folks are at least spending something. Also, economies recover in steps, and you have to start with the basic goods first.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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