Procter & Gamble's profitability will suffer because of rising commodity costs, according to Jefferies.
The firm lowered its rating for Procter & Gamble shares to hold from buy, predicting the company will report earnings below expectations next fiscal year.
Analyst Kevin Grundy cited a number of factors weighing on the consumer product giant, including slowing market growth, emerging market volatility, U.S. retail difficulties, a stronger U.S. dollar and pricing challenges that "should drive estimates lower again at P&G." His note on Monday was titled ��Tide Unlikely to Turn: Downgrade to Hold as Bull Thesis Wanes."
Grundy lowered his price target to $79 from $83 for Procter & Gamble shares. The new target is roughly even with Friday��s closing price.
The analyst noted a price basket of P&G key commodities costs has risen by about 15 percent over the past year. He said the company doesn��t have the ability to pass through higher costs to consumers.
��Commodities [are] a significant headwind,�� he said. ��P&G is expected to report its first year of negative pricing in well over a decade as the pricing environment has clearly become more difficult.��
As a result of gross profit margin pressure, Grundy reduced his fiscal year 2019 earnings per share estimate for the company to $4.25 from $4.52 versus the Wall Street consensus of $4.43.
��P&G (as well as other companies in our coverage) does not expect EMs or category growth rates to materially improve in the near-to- intermediate term,�� he said. ��In addition, competitive dynamics, particularly in P&G��s Baby and Grooming businesses (combined ~30% of global profits) will likely remain difficult.��
Procter & Gamble shares are underperforming the market this year. The stock declined 14 percent year to date through Friday compared with the S&P 500's 3 percent gain.
The company did not immediately respond to a request for comment.
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