Morning Update: Procter and Gamble

Procter & Gamble announced second quarter earnings today. Here is the link and highlights:


P&G Delivers Second Quarter EPS and Organic Sales in Line with Expectations

"Volume declined three percent for the quarter driven primarily by trade inventory reductions and consumption declines.

Gross margin declined by 70 basis points to 51.6 percent as higher commodity and energy costs of about 300 basis points were largely offset by the impact of price increases and manufacturing cost savings.

For the 2009 fiscal year, the Company expects organic sales to grow by two to five percent. The combination of pricing and product mix is expected to impact sales growth by a positive four to five percent. Organic volume is expected to be flat to down two percent. (emph added)

For the January - March quarter, organic sales are expected to grow two to five percent. The combination of pricing and product mix is expected to contribute between five and seven percent to sales growth. Organic volume is expected to decline two to three percent. . . Total sales are expected to be down two to seven percent."

DoctoRx here. The balance sheet continues to show a large working capital deficit and about $27 B in negative tangible net worth.

Commentary: The Company appears to believe that in the worst global consumer economic environment in decades, it will be able to "up-sell" products via price increases and by selling higher-priced/higher-margined goods in the 5-7% range to offset projected volume shrinkage. Good luck to P&G!

(The alert reader will note that there is no discussion of earnings here. In this brutal bear, they don't much matter. Undue attention to earnings is what has destroyed many an investor's capital over the past 1 1/2 years.)

Unlike with a company that has oodles of unrestricted cash, all P&G has is its trade names, distribution system, etc. as its asset value. If times stay bad, there is no upside to its current sales and earnings projection, but there is lots of downside. The stock has reacted badly to the news today (currently down 4%), despite S&P reiterating how much it likes the stock. On a long term chart, this defensive company's stock is at a 2 1/2 year low and is less than 5 points (less than 10%) above a 5-year low. Watch out below.

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