Procter & Gamble (ticker: PG), the consumer-goods company known for brands like Tide, Pampers, Dawn, and Olay, is set to release its fiscal fourth-quarter earnings on Friday before the opening bell. Traders are keen on understanding the impact of customer spending on the company’s performance.
Analyst Expectations
According to analysts surveyed by FactSet, it is predicted that Procter & Gamble will report earnings of $1.32 per share on revenue of $20 billion for the fourth quarter. This demonstrates growth compared to last year’s earnings of $1.21 per share on revenue of $19.5 billion.
Boosting Results Amid Inflationary Pressure
During the fiscal third quarter, Procter & Gamble deliberately raised costs by 10% to counter inflationary pressures. This strategic move was well-received as the company also revised its outlook for organic sales growth.
Concerns over Weakening Consumer Confidence
Investors continue to be concerned about the weakening consumer sentiment, particularly after U.S. retail sales figures in June fell short of economists’ expectations, as revealed by Census Bureau data.
Impact of Inflation and Interest Rates
With stubbornly high inflation and rising interest rates, many consumers have tightened their purse strings and actively seek out bargains wherever possible. This could pose a challenge for Procter & Gamble, as their branded products typically come with a higher price tag compared to store-brand alternatives.
Procter & Gamble’s Product Variety
Procter & Gamble is known for its diverse range of products, and this is expected to work in the company’s favor during a time when customers might be inclined to look for more affordable options.
In a recent research note, Raymond James analyst Olivia Tong pointed out that Procter & Gamble may face the most pressure in product categories with higher private label exposure, such as tissue and towel. However, Tong believes that due to the wide range of price points across Procter & Gamble’s portfolio, the company will be able to capture trade down within its own brands. Tong rates the company as an Outperform and has set a price target of $175.
Positive data also indicates potential for growth in the consumer staples stock, as it has already gained 0.9% this year. The U.S. economy experienced a 2.4% annual growth rate in the second quarter, surpassing economists’ expectations. This growth was partially driven by increased consumer spending.
According to Steve Rick, chief economist at TruStage, consumers are benefiting from reduced costs of core goods, leading to a stronger start for the U.S. economy in the first half of the year.