“Procter & Gamble sticks by forecasts; profit meets expectations”
Source: http://www.reuters.com/article/2013/10/25/us-procter-results-idUSBRE99O0DZ20131025
Procter & Gamble released its quarterly report on Oct. 25, 2013 with net earnings of $3,057 million and other comprehensive income of $768 million. and announced that its earnings met Wall Street’s expectations. However, P&G’s stock price fell about 1% to $79.93 in the morning trading on the same day, which didn’t significantly indicate that some investors had a higher expectation of P&G’s performance and were disappointed. The remarkable increase of P&G’s stock price (2.46%) at the beginning of the announcement week is the primary reason for the minor falling. Moreover, around 65% S&P 500 companies beat earnings estimates. By barely meeting estimates, P&G sent the signal that its stock was trading at fair valuation.
In my view, looking at the half-day trading post announcement is also an inconclusive way to analyze stock reaction. Given fairly good visibility in the few days prior to announcement stocks usually runs before earnings release. For complete analysis, I will look at five-days accumulative return (from Oct. 21 to Oct. 25) around the announcement date. The returns for five days were: 1.79%, 0.66%, -0.37% and -0.76%. The average increase of P&G’s stock price was 0.33%. So we can conclude that P&G stock possesses a fair market value.
Till now, P&G issued total 8,018.4 million shares in 2013 (4,009.2 in September and 4,009.2 in June) and it expected 5-7% growth in earnings per share this fiscal year, which is a big challenge as they are running promotions intensively and as there are intensive competitions from Unilever, Colgate, etc. The best way to realize the increase of profit and market share is innovation. However, in order to avoid the manipulation of earnings per share, we should focus on the P&G’s treasury purchase because this action would greatly enhance the value of EPS.
References:
http://investing.businessweek.com/research/stocks/financials/drawFiling.asp?docKey=137-000008042413000089-6NK4BQ6LL813AQ43T1MRPU2DJH&docFormat=HTM&formType=10-Q
Written by Yi Kan (Dustin)
Dec. 6, 2013