The outlook for P&G could improve even if this week's results, when it is expected to report its first year-on-year drop in sales since 2017 and the second consecutive quarter of lower earnings, could be rough
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Earnings season is underway. This week we've already met revenues of Morgan Stanley, JP Morgan and other companies. On Thursday, it's over to Procter&Gamble and Netflix.
Netflix started to grow its subscriber base once again in the third quarter when it added 2.4 million users and it has said it expects this to accelerate to 4.5 million additions in the fourth, giving it the opportunity to show it is back on a steadier path of growth. The number of additions will prove highly influential on how markets react. An acceleration from the previous quarter would help install confidence that growth is reaccelerating while a slowdown would fuel fears that this is just a temporary rebound.
However, not everyone is convinced it can deliver this week, with some analysts predicting this could come in as low as 2.7 million subscribers.
It will be more difficult for investors to gauge which direction subscriber numbers are headed going forward. Netflix will no longer be providing guidance for paid net additions as it focuses on its financials and introduces new pricing tiers.
Netflix shares have popped over 90% since hitting five-year lows last year, but it will need to impress this week if it wants to keep up the momentum. The rally in recent months has been underpinned by high expectations for its advertising business and the crackdown on the 100 million households thought to be watching Netflix for free by using other people's passwords. Both are seen as critical catalysts for Netflix to reinvigorate growth in 2023 but it could be a slow and steady build, which may leave investors disappointed in the meantime if subscriber growth falls below expectations.
Earnings are set to decline in 2022 for the first time in seven years but they are forecast to return to growth in 2023, when Wall Street believes Netflix will add 14 million paid subscribers.
Analysts forecast P&G will report a 1.2% drop in revenue to $20.7 billion in the second quarter of its financial year and a 4.1% fall in EPS to $1.59
The outlook for P&G could improve even if this week's results, when it is expected to report its first year-on-year drop in sales since 2017 and the second consecutive quarter of lower earnings, could be rough. Analysts forecast P&G will report a 1.2% drop in revenue to $20.7 billion in the second quarter of its financial year and a 4.1% fall in EPS to $1.59. While beauty is expected to remain strong with a further acceleration in organic growth to 5%, demand for grooming, healthcare, homecare and its array of other products is slowing down. Lower volumes are being countered by rising prices. China's emergence from Covid-19 provides an opportunity for its prospects to improve and earnings are forecast to return to growth over the coming quarters. P&G is currently anticipating a 1% to 3% fall in annual revenue (with organic growth of 3% to 5%) and a 4% increase in EPS.
