Monday, April 20, 2020

Are Investors Prescribing Procter & Gamble?

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What’s happening: Procter & Gamble Co. reported better-than-expected earnings for its fiscal third quarter, although sales missed the consensus estimate.

What happened: Shares of the consumer goods company climbed 2.6% on Friday, even as the company reported sales of $17.21 billion, missing expectations of $17.30 billion.

Despite the marginal sales miss, investors chose to focus on the many positives reported by the company. Procter & Gamble recorded the best US sales growth in decades, amid the coronavirus lockdown.

Why it matters: With consumers stockpiling various essentials due to stay-at-home orders following the coronavirus outbreak, the company reported a surge in sales in the US. Procter & Gamble, which is among the world's biggest manufacturers of consumer goods, witnessed a strong increase in sales for handwash soaps and antibacterial sprays. Organic sales in the country jumped 10% in the third quarter.

The company’s net income grew to $2.92 billion, or $1.12 per share in the third quarter, versus $2.75 billion, or $1.04 per share, recorded for the same quarter last year. Adjusted earnings came in at $1.17 per share, ahead of the consensus estimates of $1.12 per share.

While P&G disclosed that everyday essentials were in strong demand since March, sales of beauty products dwindled. Sales at its fabric and home care segment climbed 10% during the period, while its key moneymaker brand, Pricey SK-II skin care product, witnessed a sales decline of over 20%.

At a time when various firms are withdrawing or scrapping their guidance for the year, P&G issued its full-year forecast. Although the sales growth outlook was lowered from 4%-5% to 3%-4%, management said this was due to currency fluctuations.

Procter & Gamble also bucked the overall market trend not just by declaring a quarterly dividend, but also increasing it by 6% to 79.07.

After the end of the COVID-19 crisis, the company is expecting slower sales in essentials to be offset by a pickup in sales of beauty products.

How the shares responded: Shares of P&G rose 2.6% during regular trading hours following the release of quarterly results. The stock slipped slightly by around 0.5% in after-hours trading, possible driven by profit taking. P&G’s shares have climbed around 6% over the past year, while gaining around 9% in the last five days.

What to watch: P&G’s CFO Jon Moeller suggested challenging times ahead for the company, as the coronavirus crisis makes keeping its factories running increasingly difficult. The high unemployment rate could also affect demand for the company’s non-essential products.

The Markets Today

     

Investors will likely be watching European stocks today, ahead of economic data from the region.

Context: European stocks closed higher on Friday, as investors cheered news of a potential treatment for coronavirus. Further reports of a reopening of major economies also lifted investor sentiment.

Details: According to recent reports, coronavirus patients being treated with an experimental drug, remdesivir, at the University of Chicago Medicine showed signs of a quicker recovery. Europe’s largest economy, Germany, has been witnessing a decline in the rate of new COVID-19 cases and has started implementing plans to ease lockdown restrictions.

The Eurozone reported a slowdown in its inflation rate to 0.7% year in March, versus 1.2% in February.

Travel and leisure shares led the surge in European stocks on Friday. The pan-European Stoxx 600 index gained 2.6%, with all sectors closing in positive territory. The FTSE 100 rose 2.8%, while German 30 closed higher by 3.15%.

Shares of cinema operator Cineworld spiked 21%, while German meal delivery firm Hellofresh saw its shares declining more than 4%.

What to watch: Investors will be closely monitoring the daily coronavirus numbers. The number of positive COVID-19 cases in Italy has exceeded 178,970, with around 23,660 deaths. Spain has so far confirmed more than 198,670 cases, with around 20,450 fatalities. France has also confirmed more than 154,090 coronavirus cases.

Markets await current account and balance of trade data from the Eurozone. The region’s current account surplus is expected to grow to €18.4 billion in February, from €8.7 billion in January, while the trade surplus is expected to expand to €17 billion in February, from €1.3 billion in January.

Other Markets: US indices closed higher on Friday, with the Dow, S&P 500 and Nasdaq 100 up by 2.99%, 2.68% and 1.38%, respectively.

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Germany’s producer prices, Italy's current account, Canada’s wholesale sales, Turkey’s government debt, Russia’s unemployment rate, retail sales and real wage growth as well as the US Chicago Fed National Activity Index.