Procter & Gamble Co. (PG) reported modest results for its fiscal second quarter of 2011. Net earnings from continuing operations were $1.11 a share, up 10% compared with $1.01 a share in the year-ago period, surpassing the Zacks Consensus Estimate of $1.10.

Procter & Gamble forecasts third-quarter 2011 net earnings from continuing operations and core earnings to be in the range of $0.95 to $1.00 per share, reflecting a 7%–12% growth rate. The Zacks Consensus Estimate for the third quarter is 99 cents per share.

For fiscal 2011, the company forecasts its net earnings from continuing operations to be in the range of $3.89–$3.99 per share and core earnings to be in the range of $3.91–$4.01 per share. The guidance reflects an increase of 10%–13% based on continuing operations and up 7%–9% on a core basis. The Zacks Consensus Estimate for fiscal 2011 is $3.99.

Revenue and Margins

Net sales advanced marginally by 1.5% to $21.3 billion in the second-quarter of fiscal 2011. Quarterly revenues missed the Zacks Consensus Estimate of $21.5 billion. Excluding the impact of acquisitions, divestitures and foreign exchange, organic sales inched up 3% in the reported quarter.

On the back of a solid innovation program and marketing investment, the company reported unit volume growth throughout fiscal 2010. Quarterly volume grew 6%.

Procter & Gamble, the leading manufacturer and seller of consumer goods, projects net sales and organic sales (based on solid volume momentum, partially offset by product mix and pricing) to inflate by 5%–7% and 4%–6%, respectively, in the third quarter of 2011. For fiscal 2011, net sales and organic sales are expected to grow by 3%–5% and 4%–6%, respectively.

For the third quarter, net sales are expected to increase approximately 1% from favorable currency translation. For fiscal 2011, acquisitions and divestitures are expected to have a neutral impact on net sales, while unfavorable currency translation is expected to impact revenues by 1%–2%.

Gross margin for the quarter declined 190 basis points primarily attributable to higher commodity costs and unfavorable product mix. Operating margin contracted 210 basis points (bps) to 20.0%, compared with 22.1% in the year-ago quarter, primarily due to lower gross margin and a 20 bps increase in selling, general and administrative expenses (SG&A) as a percentage of net sales.

Other Financial Updates

Procter & Gamble exited the quarter with cash and cash equivalents of $3,249 million and long-term debt of $21,317 million. The company spent $1,256 million for capital expenditures.

The company continues to enhance shareholders' returns by spending $500 million on share repurchases.

Based in Cincinnati, Ohio, Procter & Gamble is one of the leading provider of consumer packaged goods in the United States and internationally. Procter & Gamble maintains a Zacks #3 Rank, which translates into a short-term "Hold" recommendation. However, our long-term recommendation for the stock remains "Neutral".