Jefferies Comments On Procter & Gamble Following Recent Earnings Report

Despite solid organic growth and FX tailwinds, Jefferies is lowering its June F2011E and F2012E for Procter & Gamble PG as it expects input cost inflation to weigh on margins over the near term, partially offsetting top-line reacceleration. Jefferies expects input cost inflation to weigh on gross margins, and its full-year F2011E forecast now contemplates -120bps of contraction y-o-y v. -80bps previously, with its F2012E GM forecast at 51.0% v. 51.3% previously. With commodity prices continuing to rise, mgt now estimates it will absorb $1.8B after-tax in inflation v. $1.0B previously, with nearly $400M absorbed in the March qtr alone. In the first three qtrs of the year, the company returned $8.7B to shareholders in the form of $4.2B in dividends and $4.5B in share repurchases. On an annual basis, Jefferies calculates the firm's Cash Returned to Shareholders Yield to be 6.9%, among the top in its Mid & Large Cap Coverage. Jefferies has a Buy rating and $75 PT on PG PG is trading higher at $65.39