Procter & Gamble Earnings Preview:

The Absolute Essentials

P&G Fiscal 2014 Fourth Quarter

Are investors looking for Cheer? Image: Procter & Gamble.

• P&G is shooting for 3%-4% organic revenue growth this year.

• On track through the first three quarters of fiscal 2014.

• Company should hit at least 3% organic revenue growth in this final quarter of the fiscal year.

Revenue

“Tide on the Shelf” image by Lisa Brewster under Creative Commons license.

• Earnings have not impressed so far in fiscal 2014.

• Through the first three quarters, operating income is up only 2.6% versus prior year.

• Will P&G make up some ground in Q4?

Earnings

• Productivity and cost cutting should help improve core gross margin sequentially from last quarter’s 48.9%.

Productivity & Cost Cutting

“Global Ops” image: Procter & Gamble.

• P&G measures “free cash flow productivity” (FCFP): free cash flow divided by earnings.

• FCFP was 120% last quarter.• Cash flow should still be strong, but look for

Q4 FCFP to be closer to last year’s total average of 95%, due to anticipated increased spending on capital equipment.

Cash Flow

• P&G has kept a fairly leveraged balance sheet for years.

• Traces back to Gillette acquisition in 2005/2006.

• Look for any reduction in the $36.4 billion of long-term debt this quarter.

Balance Sheet

• Bright spots: Double-digit growth in India for 47 consecutive quarters.

• Hot spots: Any impacts from Russia & Ukraine?

• Sinkholes: Updates on currency quagmires of Argentina, Venezuela.

Bright Spots, Hot Spots, & Sinkholes

Duracell marketing in Caracas, Venezuela metro. Image by Cabruta08 under Creative Commons license.

• P&G announced a total revamp of its North American supply chain earlier this year.

• Converting existing single-category plants into multi-category facilities.

• Progress in Q4?

Supply Chain

• Look for update on initial sales of new Gillette Fusion ProGlide with Flexball razor.

• Analysts will be eager to hear about innovation pipeline for fiscal 2015.

Product Innovation

Fusion ProGlide with Flexball image: Procter & Gamble.

• Share buybacks should be winding down, perhaps another $0.5 billion in Q4.

• No surprises expected on stable dividend.

Dividend and Share Repurchases

P&G Research Facility, Singapore. Image: Procter & Gamble.

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