Procter & Gamble (PG-NYSE)

Transcription

1 March 4, 2015 Procter & Gamble (PG-NYSE) Current Recommendation Prior Recommendation Underperform Date of Last Change 10/04/2012 Current Price (03/03/15) $85.16 Target Price $89.00 NEUTRAL SUMMARY P&G missed the Zacks Consensus Estimate for both earnings and sales in the second quarter of fiscal Earnings of $1.06 per share declined 8% due to currency headwinds. Organic revenues went up 2%, as better pricing made up for softer volumes. Moreover, the company lowered full-year expectations to reflect negative currency impact on sales and profits. Despite the shortterm pressures, we are encouraged by P&G s strong brand recognition, diversified portfolio, aggressive cost savings efforts and rapid growth in developing nations, The company s plan to divest around 100 underperforming brands to concentrate better on fewer core strategic brands sounds encouraging. However, these portfolio restructuring and productivity initiatives will take time to result in higher earnings growth. Currency headwinds, rising commodity costs, increasing competitive pressures and emerging market slowdown weigh on earnings growth. SUMMARY DATA 52-Week High $ Week Low $77.32 One-Year Return (%) Beta 0.43 Average Daily Volume (sh) 7,445,080 Shares Outstanding (mil) 2,701 Market Capitalization ($mil) $230,018 Short Interest Ratio (days) 1.62 Institutional Ownership (%) 60 Insider Ownership (%) 0 Risk Level * Low Type of Stock Large-Growth Industry Soap&Clng Preps Zacks Industry Rank * 188 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Sep) (Dec) (Mar) (Jun) (Jun) Annual Cash Dividend $2.57 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) 1.2 Earnings Per Share (%) 2.9 Dividend (%) 7.7 P/E using TTM EPS 19.9 P/E using 2015 Estimate 21.2 P/E using 2016 Estimate 19.4 Zacks Rank *: Short Term 1 3 months outlook 4 - Sell * Definition / Disclosure on last page ,739 A 22,175 A 20,598 A 20,655 A 84,167 A ,205 A 22,280 A 20,559 A 20,157 A 83,062 A ,792 A 20,161 A 18,700 E 18,310 E 77,963 E ,859 E 20,344 E 78,703 E Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Sep) (Dec) (Mar) (Jun) (Jun) 2013 $1.06 A $1.22 A $0.99 A $0.79 A $4.05 A 2014 $1.05 A $1.21 A $1.04 A $0.95 A $4.22 A 2015 $1.07 A $1.06 A $0.94 E $0.94 E $4.01 E 2016 $1.08 E $1.17 E $4.39 E Projected EPS Growth - Next 5 Years % Zacks Investment Research, All Rights reserved North Canal Street, Chicago IL 60606

2 OVERVIEW Headquartered in Cincinnati, OH, The Procter & Gamble Company (PG) is a branded consumer products company which markets its products in more than 180 countries primarily through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons, distributors, e- Commerce and high frequency stores. It has manufacturing operations in more than 40 countries. The company currently owns 23 Billion Dollar Brands. The company has five reportable segments namely Beauty, Grooming, Health Care, Fabric Care and Home Care, and Baby Care and Family Care. Beauty, Hair and Personal Care: The segment includes hair care and styling products, antiperspirants and deodorants, cosmetics, and products for personal cleansing and skin care. Billion Dollar Brands include Head & Shoulders, Olay, Pantene, SKII and Wella. Grooming: The segment includes Shave Care products like electronic hair removal, female and male blades & razors and pre- and post-shave products. Billion Dollar Brands include Fusion, Gillette and Mach3. Health Care: The segment includes gastrointestinal, rapid diagnostics, respiratory, vitamins/minerals/supplements and other personal health care product categories and toothbrush, toothpaste and other oral Care, product categories. Billion Dollar Brands include Crest, Oral-B and Vicks. Fabric Care and Home Care: The segment includes air care, dish care, fabric enhancers, laundry additives and detergents and surface care product categories. Billion Dollar Brands include Ariel, Dawn, Gain and Tide. P&G has agreed to sell its Duracell (Batteries) business to Berkshire Hathaway in exchange for Berkshire s equity stake in P&G. Baby Care, Feminine and Family Care: The segment includes baby wipes, diapers and pants, paper towels, tissues, toilet paper, adult incontinence and feminine care products. Billion Dollar Brands include Always, Bounty, Charmin and Pampers. In Jun 2012, Procter & Gamble sold its snack unit which included the iconic brand of potato snack, Pringles, to cereal maker, The Kellogg Company. P&G sold off its American and Asian pet care business to privately-held American confectionary and pet food manufacturer, Mars, Inc. in Jul 2014 and the European pet care business to Spectrum Brands in Dec Equity Research PG Page 2

3 REASONS TO BUY Strong Brand Recognition: Procter & Gamble s products enjoy strong brand recognition and are sold in more than 180 countries. The company enjoys leading positions in over 75% of the categories in which it competes. The company s 23 Billion Dollar Brands, that generate $1 billion to over $10 billion in sales annually, are some of the world s most commonly used household names. These products have reached the Billion Dollar Brand status through sustained product innovation and geographic expansion. In Aug 2014, the company announced plans to streamline its business to focus more on 70 to 80 of its biggest brands including the Billion Dollar Brands like Tide, Pampers and Oral-B. Though the company did not specify the brands it plans to keep or divest, it stated that these consumer and shopper preferred leading brands have accounted for 90% of the company s sales and over 95% of its profits. These core brands have grown approximately 100 basis points (bps) faster than the total company, at more than 100 bps higher pre-tax margin. Over the next two years, P&G will harvest, partner, divest or discontinue 90 to 100 brands whose sales and profits have been declining over the past three years. We believe that a smaller and more focused company should be able to grow faster, create more value and be much easier to manage. The company s long-term goals include growing organic sales modestly above market growth, achieving core earnings growth in high single-digits and generating free cash flow productivity (ratio of free cash flow to net earnings) of over 90%. Focus on Product Innovation and Marketing: P&G is known for its impressive product development capabilities and marketing prowess. In order to maintain its brand appeal, the company focuses on innovation and expansion of its product portfolio. The company believes that with consistent product innovations, supported by strong marketing and commercialization, it will deliver strong results over the long term. The company spends around $14 billion annually on marketing. Innovation is the driving force for the company and it has had a strong tradition of not only introducing blockbuster products but also of creating entirely new categories. The company has consistently increased market share in fast growing businesses over the years through innovation and new product launches. In the laundry category, for instance, the company s market share in the U.K. jumped to 50% in fiscal 2011 from around 35% in the late 1970 s only through game-changing new products like Daz automatic detergent and concentrated liquid detergent. Similarly, Head & Shoulders has transformed from merely being a North American brand to the largest shampoo brand in the world due to the company s marketing and product innovation efforts. On the one hand, the company continuously offers lower-priced products for price-sensitive consumers and on the other, successfully develops premium innovations focused on improving consumer value. Further, the company has increased its focus on discontinuous innovations like Tide Pods; which are breakthrough innovations of existing products and thereby making the existing products obsolete in the process. These innovations often result in significant market share gains, provide competitive advantage, and also, at times, redefine their respective product categories. The company s investments in promising innovation and go-to-market capabilities allow it to expand in more categories, geographies and channels, thus boosting top- and bottom-line growth. Equity Research PG Page 3

4 Strong Presence in Developing Markets; Significant Growth Driver: P&G is increasing its presence in the developing markets to capitalize on the increasing growth opportunities. The company is working on this strategy by focusing on affordability, accessibility and brand awareness. It is also localizing production in developing countries to improve customer service and lower supply chain costs, thereby boosting margins. Portfolio expansion is also an important part of the developing market plans which helps build scale and thereby improve profitability. The company s volume and market share growth trends in the developing markets, which constitute around 40% of its global sales, have been encouraging. Developing market sales have grown at a compounded average growth rate of 12% over the last 12 years. Moreover, developing markets comprise a $34 billion business for P&G, the largest developing market business for any consumer food company. Cost Savings and Productivity Improvement: P&G is investing selectively in the most profitable businesses, categories, brands and markets; making focused investments in innovation and go-tomarket capabilities; accelerating cost savings and productivity; and improving execution and operating discipline in order to turn around its business and improve its competitive position. In Feb 2012, Procter & Gamble announced a five-year (fiscal 2012 through fiscal 2016) productivity and cost savings plan to reduce spending across all areas (supply chain, research & development, marketing and overheads) by around $10 billion. Per the plan, P&G is reworking its supply chain, including the reduction in the number of plants and simplifying the manufacturing platforms. The company is also in the process of improving its marketing returns through optimized mix of advertising media (more digital, mobile and social presence), greater clarity of communication and messaging and greater efficiency in nonadvertisement marketing expenditure. Under the plan, the company cut its workforce by 15% through fiscal Management expects to reach the higher-end of its 16 22% non-manufacturing headcount reduction target range by the end of fiscal 2015, more than a year ahead of schedule. The company also improved net manufacturing productivity by 7% each in fiscal 2013 and 2014, ahead of the annual target of 5%. Manufacturing productivity is expected to improve at least 6% in fiscal 2015 too. In fiscal 2013 and 2014, P&G recorded $1.2 billion and $1.6 billion in cost of goods savings, respectively and expects to exceed the $1.2 billion target in fiscal 2015 as well. The company is confident that it will accelerate and exceed its $10 billion cost savings goal. Additionally, P&G is streamlining its distribution network by focusing on centers that are strategically closer to key customers. Overall, the company has set a $1 $2 billion value creation target from these global supply chain reinvention efforts, including an incremental $ million in annual costs of good savings over the next three to five years. These savings are in addition to the $10 billion original commitments. Strategic Initiatives Improve Product Portfolio: The company focuses on improving its product portfolio through strategic initiatives which enable it to concentrate on its fast growing businesses. For example, in Oct 2009, the company sold its global pharmaceuticals business to Warner Chilcott to focus on the fast growing consumer oriented healthcare business. In calendar 2011, the company formed a joint venture with the world s largest generic drug maker, Teva Pharmaceuticals, to expand its over-the-counter business. In Jun 2012, the company divested its snacks unit, Pringles, to Kellogg Company to focus more on beauty and personal care products. In fiscal 2013, P&G divested its underperforming bleach business in Italy and Portugal and the Braun household appliances business. In 2014, P&G divested its remaining global bleach businesses. Equity Research PG Page 4

5 Over the next two years, it plans to divest around 100 non-core brands whose sales and profits have been declining over the past three years. P&G has already divested, discontinued or made plans to consolidate 35 brands till date. In keeping with the plan, last year, P&G sold off its American and Asian pet care business to Mars, Inc. in July and the European pet care business to Spectrum Brands in December. Moreover, the company has signed a deal to divest its Duracell batteries business to Berkshire Hathaway in exchange for Berkshire s equity stake in P&G. In November, last year, the company signed a deal to divest Camay and Zest soap brands to U.K.-based consumer goods giant Unilever. The divesture of the underperforming business will help the company concentrate on its core businesses which have greater potential for growth and thereby improve the top line. Strong Free Cash Flows: Procter & Gamble generates strong free cash flow annually. The company has been delivering free cash flow of $10 to $11 billion a year for the past four to five years. The cash flow allows management the opportunity to invest in product innovations, acquisitions and brand development in addition to regularly paying dividends and repurchasing shares. The company has consistently increased its dividend and the 7% dividend hike in Apr 2014 marked the 58th consecutive year of dividend hike. The company also repurchased shares worth $6 billion each in fiscal 2013 and 2014 and $4 billion and $7 billion in fiscal 2012 and fiscal 2011, respectively. In fiscal 2015, the company expects to repurchase shares worth $5 billion. REASONS TO SELL Beauty Remains Sluggish: The Beauty segment has remained weak for the past two fiscal years. Sales declined 2% in both fiscal 2013 and 2014 while volumes remained flat. Despite growth in the overall market, the company is losing market share due to aggressive competitive activity. The company lost market share by 0.4 points in fiscal 2014 and 0.5 points in fiscal Volume growth in developing regions is being overshadowed by declines in the developed markets like the U.S. and Europe. In particular, Pantene and Olay brands, which account for about 25% of the beauty segment sales, have underperformed in the recent years. Slow Global Market Growth: Global market growth in P&G s categories has slowed down from 4% a year ago to 2.5 3% at present. Despite modest economic recovery and improvement in consumer confidence in the U.S., uncertainty persists. Though there has been moderate improvement in economic growth in 2014, consumers are increasing their spending only modestly, as a surge in job growth this year is yet to translate into significantly higher wages. High interest rates, higher healthcare costs and still-tightened credit availability continue to hurt consumer discretionary spending in the U.S. In Europe, though signs of improvement are visible, the economic conditions are still challenging. Though emerging markets offer strong growth prospects, they are generally volatile. The policy environment has changed rapidly from pricing and import controls in some emerging countries to political unrest in others that has temporally disrupted business operations. In fact, the market growth rate of developing countries has slowed down in the last 2 3 quarters. China is currently witnessing an economic slowdown affecting consumption across most consumer goods. Moreover, economic conditions are challenging in Brazil and Venezuela. P&G is facing business disruption and substantial price reductions in Venezuela following the publication of new price control regulations in the country. Moreover, volatile market dynamics in countries like Argentina Equity Research PG Page 5

6 (import restrictions and price controls), Egypt, Syria and South Korea and political unrest in Russia, Middle East and Ukraine are adding to the woes. Increased consumption taxes in several large markets including Japan and Mexico also hurt consumers spending power. Foreign Exchange is a Major Headwind: Foreign exchange is a major headwind for P&G with around 60% of the company s business generated outside North America. Foreign exchange hurt the company s revenue growth by 2% in both fiscal 2014 and 2013 and is expected to hurt the top line by 5% in fiscal Over the last 12 months, almost all foreign currencies have weakened versus the U.S. dollar, resulting in the largest earnings headwind from foreign exchange in P&G s history, over $1.4 billion after-tax. High Commodity Costs Hurting Margins: Procter & Gamble is currently facing rapid and significant increases in commodity costs which are hurting margins. Higher commodity costs have lowered the company s gross margins in both fiscal 2013 and RECENT NEWS P&G Lowers Share Buyback Outlook at CAGNY Feb 19, 2015 At the Consumer Analyst Group of New York (CAGNY) conference, P&G lowered its fiscal 2015 share buyback guidance from a range of $5 billion-$7 billion to $5 billion. Apart from that, the company reiterated its previously provided financial guidance. P&G Lags Second Quarter Earnings & Sales on Currency Woes; Cuts View Jan 27, 2015 P&G missed the Zacks Consensus Estimate for both earnings and sales in second-quarter fiscal 2015 for the second quarter in a row. Moreover, the consumer goods giant lowered full-year expectations to reflect the unprecedented currency devaluations. P&G s second-quarter adjusted earnings of $1.06 per share lagged the Zacks Consensus Estimate of $1.14 by 7%. Earnings declined almost 8% year over year including a currency headwind of 14% ($0.16 per share). Excluding currency headwinds, earnings increased 6% on the back of pricing and mix gains and productivity savings. Adjusted earnings exclude the impact of restructuring charges, other non-core charges and a gain from discontinued operations. Including all these special items, reported earnings were $0.82 per share, down 31% year over year. Revenue Discussion P&G s net sales declined 4% at $20.16 billion. As expected, steep currency headwinds hurt sales significantly, thereby lowering P&G s international sales. With around 60% of the company s business generated outside North America, currency headwinds affected sales by 5% as a strong dollar lowered the value of virtually every currency in the world, mainly the Russian ruble. The top line narrowly missed the Zacks Consensus Estimate of $20.70 billion. Equity Research PG Page 6

7 Organically (excluding the impact of acquisitions, divestitures and foreign exchange), revenues were up 2% driven by pricing and mix gains which made up for the weaker volumes. Organic sales growth improved throughout the quarter, with mid-single digit growth in December. Organic volumes were flat for the third consecutive quarter. While organic volumes were up 1% in developed markets, it declined slightly in developing countries. Price increases implemented to offset significant currency headwinds eroded volumes and market share in developing countries. Pricing primarily to offset inflation and currency devaluation and mix contributed 1% each to sales. P&G took Fx-related pricing action in countries like Ukraine, Mexico, Argentina, Brazil and Venezuela. P&G continues to operate against a challenging operating environment. Slowing global market growth, strong currency headwinds, unrest in several markets in the Middle East, Russia and Ukraine, and pricing controls/import restrictions in Argentina and Venezuela have made the operating environment challenging for the company. These headwinds are expected to continue in the future quarters as well. Moreover, management expects market share erosion and lower consumption in several countries due to pricing action taken to offset Fx impacts. Market Share P&G held or gained share in businesses representing only 50% of global sales (60% in the U.S.). Management witnessed an increase in market growth in the U.S. as a result of improving employment picture, higher wage rates and lower gasoline prices. P&G s share in Latin American market grew while remaining same in Europe and India, Middle East and Africa. However, the company lost share in Asia, especially China and Japan. Margins Decline Core gross margin declined 20 bps to 50.4% as manufacturing savings and higher pricing were offset by currency headwinds, higher commodity costs, investments in innovation and capacity building and unfavorable geographic/product mix. Excluding currency headwinds, gross margin increased 40 bps. While transportation costs declined with lower fuel prices, cost of materials such as resin, other specialty chemicals and pulp increased year over year. However, management is hopeful that these cost headwinds will be offset by lower transportation cost should oil prices remain at the current levels resulting in commodity cost tailwinds by the fourth quarter. Core selling, general and administrative expenses (SG&A) increased 30 bps (as a percentage of sales) to 30.1% as productivity savings and marketing efficiencies were offset by currency headwinds and investments in R&D and capacity. Excluding currency headwinds, SG&A ratio improved 80 bps. Core operating margin declined 60 bps to 20. 2% due to lower gross margins and high SG&A ratio. Excluding currency headwinds, operating margin was up 120 bps. Currency headwinds hurt profit-after tax by $450 million in the second quarter, $650 million in fiscal year-todate and are expected to pull down fiscal 2015 profits by $1.4 billion. Equity Research PG Page 7

8 Segment Discussion Beauty, Hair and Personal Care: Beauty segment declined 6% from the prior year to $4.96 billion due to currency headwinds. Organically, revenues declined 1%, worse than flat growth in the previous quarter as innovation-driven sales growth in the Salon Professional and Antiperspirant & Deodorant businesses was offset by lower sales in the Prestige and Skin and Personal Care categories. Organic volumes declined 2%, worse than 1% drop in the last quarter. Price was up 1%, while mix remained flat. Foreign exchange hurt revenues by 4%. The segment s net earnings declined 7% to $863 million due to lower sales. Grooming: Grooming declined 5% to $2 billion. Organically, revenues increased 2% as price increases made up for lower volumes. Price increases added 4% to revenue growth driven by increases in Gillette grooming. While volumes declined 2%, mix remained flat. Currency had a 7% negative impact on revenue growth. Higher volumes in Electronic Hair removal were offset by lower Blades & Razors volume in the developed as well as developing regions. The segment s net earnings declined 2% to $544 million as lower sales offset gross margin expansion and a reduction in SG&A spending. Health Care: Healthcare products declined 3% to $2.09 billion hurt by currency headwinds. Organically, revenues grew 1% as lower volume in Personal Health Care was offset by growth in Oral Care from innovation and increased pricing. Price remained flat, while volume declined 2%. Both volume and pricing slowed down from the previous quarter. Mix increased 3%, while currency had a negative impact of 4% on sales. The segment s net earnings declined 1% to $369 million due to lower sales and gross margin. Fabric Care and Home Care: The segment declined 4% to $5.78 billion due to currency headwinds of 6%. Organically, revenues increased 2% as higher Fabric Care volume was offset by lower Home Care volumes, mainly in the Asian markets. Price increased 1%, while volume improved 2%. Both pricing and volume were better than last quarter. Mix, however, remained flat. The segment s net earnings declined 6% to $706 million due to lower sales and gross margins. Baby Care, Feminine and Family Care: The segment declined 2% to $5.22 billion due to currency headwinds of 6%. Organically, revenues grew 4% driven by pricing and innovation in Baby Care which offset lower sales in Feminine Care. While volumes remained flat, mix added 3% and pricing added 1% to sales. The segment s net earnings declined 1% to $760 million due to lower sales which offset higher pricing and manufacturing cost savings. Financial Details P&G generated $3.4 billion in operating cash flow and $2.82 billion in free cash flow with 95% adjusted free cash flow productivity. The company returned a total of $3.7 billion of cash to shareholders $1.8 billion as dividends and $1.9 billion through share repurchase. Equity Research PG Page 8

9 Fiscal 2015 Guidance Lowered The company reiterated the currency neutral organic sales and core earnings per share guidance. However, higher-than-expected negative impact from currency compelled management to lower its net sales and earnings guidance. Management expects significant currency headwinds to weigh on sales and earnings in the second half of P&G will try to offset the Fx impact through pricing and productivity savings. Net revenue growth is expected to decline in the range of 3 4% lower than prior expectation of its being flat to up in a low single-digit range. Currency is expected to hurt revenues by 5%, much higher than 2% expected previously, while minor brand divestures are expected to hurt revenues by 1%. Organic sales are still expected to grow in the low-to-mid single-digit range. The company expects core earnings per share to be flat or decline in a low single-digit range (versus lastyear core earnings per share of $4.09), versus prior expectation of mid single-digit growth. Management predicts currency impacts to hurt core earnings per share by approximately 12%, almost double the prior range of 5 6%. We would like to remind investors that this is the second time this year that P&G has lowered its earnings expectations due to currency headwinds. Excluding currency headwinds, management expects double-digit core earnings per share growth. Management expects to deliver 60 bps of margin improvement in the developing markets in fiscal 2015 despite the Fx headwinds. Free cash flow productivity is expected to be 96% above prior guidance of at least 90%. Second-Half Outlook The company delivered 2% organic sales growth in the first half of the year. Management expects organic top-line trends to accelerate moderately in the second half given an improving U.S. market, easing comparisons and higher pricing to offset Fx impacts. Moreover, lower commodity costs in the second half and productivity savings should result in meaningful improvement in core earnings per share from the first half. However, significant negative Fx impact, market share erosion and lower consumption in several countries due to pricing action and macroeconomic headwinds in a number of key markets remain challenges in the second half. P&G Divests Camay and Zest Soap Brands to Unilever December 22, 2014 P&G announced the sale of its Camay and Zest soap brands to U.K.-based consumer goods giant Unilever for an undisclosed amount to focus better on fewer core strategic brands. Along with the brands, the consumer giant will sell its Talisman manufacturing facility in Mexico. Once the transaction is over, 170 employees associated with the unit will be transferred to Unilever. The transaction involves the global sale of the Camay brand and Zest brand outside of North America and the Caribbean. The sale is expected to close in the first half of The divesture is in line with P&G s plans to divest around 100 underperforming brands to concentrate better on fewer core strategic brands which have greater potential for growth and thereby, improve the top line. Equity Research PG Page 9

10 VALUATION Procter & Gamble s current trailing 12-month earnings multiple is 19.9x, representing a discount of 12.7% from the industry average of 22.8x. Over the last five years, Procter & Gamble s shares have traded in the range of 15.6x to 21.3x trailing 12-month earnings. Based on fiscal 2015 earnings estimate of $4.01, the stock is trading at 21.3x, representing a discount of 6.2% to the industry average of 22.7x. At the end of the second quarter of fiscal 2015, the P/B multiple of the stock was approximately 3.8x, a huge discount to the industry average of 13.7x. Our target price of $89.00 is based on approximately 22.2x our fiscal 2015 earnings estimate. On a P/B basis, the price target is based on a P/B multiple of approximately 4.0x. Key Indicators P/E F1 P/E F2 Est. 5-Yr EPS Gr% P/CF (TTM) P/E (TTM) P/E 5-Yr High (TTM) P/E 5-Yr Low (TTM) PROCTER & GAMBLE CO (PG) Industry Average S&P Henkel kgaa adr (HENKY) Colgate-Palmolive Co (CL) TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE (TTM) D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA (TTM) PROCTER & GAMBLE CO (PG) Industry Average S&P Equity Research PG Page 10

11 Earnings Surprise and Estimate Revision History Equity Research PG Page 11

12 DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of PG. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1126 companies covered: Outperform %, Neutral %, Underperform 8.2%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Analyst Last Updated by Copy Editor Content Editor Lead Analyst QCA Reason for Update Kinjel Shah Kinjel Shah Kamalika Pramanik Kinjel Shah Kinjel Shah Q215 Earnings Update Equity Research PG Page 12