Procter & Gamble (PG) Beats on Q2 Earnings & Sales, Ups View

The Procter & Gamble Company PG has posted better-than-expected second-quarter fiscal 2022 results. The top and bottom lines not only surpassed the Zacks Consensus Estimate but also grew year over year. Results were driven by improved productivity amid cost headwinds along with the rising demand for cleaning products due to the resurgence of COVID-19 cases. Encouragingly, management lifted its fiscal 2022 outlook.

Following impressive earnings, shares of Procter & Gamble rose 1% in the pre-market hours. Shares of this Zacks Rank #2 (Buy) company have gained 11.7% in the past three months compared with the industry’s 7.2% growth.

Q2 in Detail

Procter & Gamble’s adjusted earnings of $1.66 per share inched up 1% from core earnings of $1.64 per share in the year-ago quarter. This can be attributable to higher sales and lower outstanding shares. The figure also outpaced the Zacks Consensus Estimate of $1.65. Currency-neutral net EPS rose 2% year over year.

The company reported net sales of $20,953 million, increasing 6% year over year and surpassing the Zacks Consensus Estimate of $20,324 million. Sales growth was attributed to strength across all segments coupled with robust volume and pricing gains, which offset higher commodity and freight costs.

On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 6%, backed by a 3% increase in the shipment volume and a 3% rise in pricing, which more than offset rising input and commodity costs.

Net sales for the Beauty, Grooming, Fabric & Home Care, Health Care, and Baby, Feminine & Family Care segments increased 3%, 4%, 7%, 8% and 5%, respectively. All of the company’s business segments reported growth in organic sales. Organic sales moved up 8% each in Fabric & Home Care, and Health Care; 5% each in Grooming, and Baby, Feminine & Family Care; and 2% in Beauty.

 

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Margins

In the reported quarter, the gross margin contracted 400 basis points (bps) to 49.1%. Currency had a 0.1% negative impact on the gross margin. The currency-neutral gross margin declined 410 bps to 49%. The decline in the gross margin was mainly due to a 140-bps impact of an unfavorable mix, 400 bps of commodity cost inflation, a 60-bps increase in transportation costs, and 20 bps from product and packaging investments, and other impacts. This was partly negated by 80 bps of gross manufacturing productivity savings and 130 bps of pricing gains.

Selling, general and administrative expenses (SG&A), as a percentage of sales, declined 150 bps from the year-ago quarter to 24.4%. Adverse currency increased SG&A expenses by 0.2%. SG&A expenses declined 170 bps on a currency-neutral basis, owing to 70 bps of savings from overhead and marketing expenses, and 150 bps of cost leverage gains, partly offset by a 50-bps increase in marketing and overhead investments.

The operating margin declined 250 bps from the prior year to 24.7%. Favorable currency hurt the operating margin by 0.1%. On a currency-neutral basis, the operating margin contracted 240 bps to 24.8%. The headwinds were partly offset by 150 bps of productivity cost savings.

Financials

Procter & Gamble ended the reported quarter with cash and cash equivalents of $10,288 million, long-term debt of $22,322 million, and total shareholders’ equity of $44,893 million.

The company generated an operating cash flow of $5,121 million in second-quarter fiscal 2022 and adjusted free cash flow of $4,495 million. Adjusted free cash flow productivity was 106% in the fiscal second quarter.

The company returned $7 billion in cash to its shareholders in the fiscal second quarter. This included $2 billion of dividend payouts and $5 billion of share buybacks.

Procter & Gamble Company The Price, Consensus and EPS Surprise

 

Procter & Gamble Company The Price, Consensus and EPS Surprise

Procter & Gamble Company The price-consensus-eps-surprise-chart | Procter & Gamble Company The Quote

Fiscal 2022 Guidance

Driven by the solid results, management raised its fiscal 2022 guidance. The company now anticipates all-in sales growth of 3-4%, up from the previously mentioned 2-4%. Organic sales are likely to increase 4-5%, up from the earlier stated 2-4%. Currency movements are expected to negatively impact all-in sales growth by 1%.

EPS, on a reported basis, is expected to increase 6-9%, whereas the company reported $5.50 in fiscal 2021. Core EPS for fiscal 2022 is anticipated to grow 3-6% from $5.66 earned in fiscal 2021. The earnings view takes into account an after-tax headwind of $2.3 billion from higher commodity costs, $300 million from higher freight costs and $200 million from unfavorable currency. Commodity and freight costs are likely to hurt fiscal 2022 EPS by $1.10 per share on a combined basis.

The company projects a core effective tax rate of 18-19% for fiscal 2022. It expects capital expenditure to be 4-5% of net sales in fiscal 2022.

Adjusted free cash flow productivity is estimated to be 95% for fiscal 2022, up from the previously communicated 90%. The company expects to remain committed to returning cash to shareholders in fiscal 2022. It plans to make dividend payments of more than $8 billion along with share repurchases of $9-$10 billion in fiscal 2022.

Stocks to Consider

Some other top-ranked stocks in the Consumer Staples sector are Medifast MED, United Natural Foods UNFI and Coca-Cola FEMSA KOF.

United Natural Foods distributes natural, organic, specialty, produce, and conventional grocery and non-food products. It currently sports a Zacks Rank #1(Strong Buy). United Natural Foods has a trailing four-quarter earnings surprise of 35.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for UNFI’s current financial-year sales and EPS suggests growth of 4.8% and 7.7%, respectively, from the year-ago period’s reported figures. Shares of United Natural Foods have risen 2.4% in the past three months.

Medifast, one of the leading health and wellness companies, currently has a Zacks Rank #2 (Buy). MED has a trailing four-quarter earnings surprise of 17.3%, on average.

The Zacks Consensus Estimate for MED’s current financial-year sales and earnings suggests growth of 63% and 49.3%, respectively, from the year-ago period’s figures. Shares of Medifast have risen 3.1 % in the past three months.

Coca-Cola presently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 9.7%, on average. Shares of Hershey have gained 3.5% in the past three months.

The Zacks Consensus Estimate for Coca-Cola's sales and earnings per share for the current financial year suggests growth of 8.5% and 41.3%, respectively, from the year-ago reported numbers. KOF has an expected long-term earnings growth rate of 14.1%.


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Procter & Gamble Company The (PG): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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