Diversified consumer giant Procter & Gamble (PG) reported stronger than expected fourth quarter earnings and reaffirmed decent fiscal year 2013 guidance late last week. The firm posted net operating earnings of $0.82 per share, which was flat year-over-year, but slightly higher than consensus estimates and above the top end of the firm's previous guidance range. Revenue was $20.2 billion during its fourth quarter, down 1% on a reported basis, but in-line with the Street's expectations (it grew 3% on a currency-neutral basis). The firm also reaffirmed its fiscal year 2013 guidance, where it expects operating earnings per share in the range of $3.80-$4.00 compared to its reported fiscal 2012 figure of $3.85 per share. On the revenue side, the firm expects organic growth between 2-4%, consisting of 2% higher prices and the balance from volume and a negative currency impact.
No particular segment of Procter's business stood out as a rapid growth engine during the period. Most of the firm's markets are mature, so we expect profit gains to come from expanding margins and price increases rather than from large volume acceleration. On a currency-neutral basis, the firm's Baby Care and Family Care segment grew revenue 5% during the fourth quarter, easily outpacing every other business line. The firm cited growth in emerging-market volumes and heavy discounting in developed markets as the primary drivers throughout fiscal year 2012. Grooming, one of the firm's traditionally stronger businesses, was flat-year-over-year on a currency-neutral basis. Grooming, which includes razors and razor-blades, is a relatively high-margin business, and we suspect P&G will focus on returning it to growth.
Fabric Care and Home Care, which is best known for housing the company's various detergents, grew revenues just 1% on a currency-neutral basis. The firm pointed out that price increases, or "consumer value issues," hurt detergent volumes in developed markets. We wouldn't be surprised to see the firm roll back recent price increases to recapture market share. Fourth quarter revenues in Beauty Care and Health Care grew modestly, up 1% and 3%, respectively.
Though no business line posted incredible growth, P&G continues to be a cash cow. The firm raised its dividend for the 56th consecutive year and generated $13.3 billion in operating cash flow during the year. The firm repurchased $4 billion in stock in fiscal year 2012, and it intends to repurchase the same amount in fiscal year 2013. The dividend growth stalwart also generated $519 million in after-tax cash from its divestiture of Pringles to Kellogg (K), helping boost its cash balance to over $4.4 billion.
Although earnings growth in fiscal year 2013 looks to be less-than-stellar, Procter produces several consumer necessities that allow its business to easily withstand broader economic headwinds. We think shares are trading within their fair value range. However, with a tremendous dividend track record, a good score on our Valuentum Dividend Cushion and sufficient capacity for further dividend growth, we think shares make an attractive dividend growth investment. We continue to hold it in our Dividend Growth Newsletter portfolio.
Additional disclosure: PG is included in our Dividend Growth portfolio.