ii view: P&G exceeds expectations in tough quarter

Shares in this consumer goods colossus are down by a fifth year-to-date. We assess prospects. 

First-quarter results to 30 September

• Net sales up 1% to $20.6 billion
• Organic sales up 7% to $20.6 billion
• Earnings Per Share (eps) down 2% to $1.57

Chief executive Jon Moeller said:

“We delivered solid results in our first quarter of fiscal 2023 in a very difficult cost and operating Environment. We remain committed to our integrated strategies of a focused product portfolio, superiority, productivity, constructive disruption and an agile and accountable organization structure.”

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ii round-up:

Consumer goods giant Procter & Gamble Co (NYSE:PG) today reported sales and profits which beat Wall Street hopes, but also lowered its full-year earnings forecast given increasing headwinds from a stronger US dollar. 

Revenue growth of 1% year-over-year to $20.6 billion, aided by product price increases, helped offset a 3% fall in demand (volumes), exceeding analyst forecasts for sales of nearer to $20.3 billion. Full-year earnings per share are now expected to come in at the lower end of its previous estimate of flat to 4% higher. 

P&G shares rose by around 2% in US trading having come into this latest announcement down around a fifth year-to-date. Shares for fellow personal care and tissue marker Kimberly-Clark (NYSE:KMB) are down by a similar amount, while European peer Nestle SA (SIX:NESN) is down 15%.  

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P&G’s many brands include Aerial, Bounty, Fairy, Gillette and Lenor. Tightening consumer budgets left management reducing its annual net sales forecast to a fall of between 1% and 3%, down from a previous estimate of flat to up 2%.

Factors including unfavourable foreign exchange rates, higher commodity and materials costs, and increased freight rates are all expected to weigh on full-year performance. 

P&G returned nearly $6.3 billion of cash to shareholders via share buybacks and dividends during the quarter. 

ii view:

Procter & Gamble is currently the ninth-largest company in the 30-strong Dow Jones index with a value of over $300 billion. It operates across the five divisions of Beauty, Grooming, Healthcare, Fabric & Home Care, and Baby, Feminine and Family care. Other brand names include Tide, Febreze, Always, Crest, Oral-B, Pantene and Pampers. 

For investors, a highly uncertain economic outlook including rising interest rates and a cost-of-living crisis offer a tough backdrop for customers. Costs for businesses generally are rising, a strong US dollar now makes P&G’s exports more expensive, while major stockists of its products such as Tesco (LSE:TSCO) and Sainsbury (J) (LSE:SBRY) in the UK continue to grow their own label product range. 

On the upside, P&G's long list of household goods are popular worldwide, with its ability to push through price rises arguably reflecting their strength of brand. Management initiatives to sharpen productivity are not to be forgotten, while a forecast dividend yield of close to 3% offers attraction, particularly given it has paid a dividend every year since its incorporation in 1890. On balance, P&G appears to remain worthy of a place in a diversified portfolio with a focus on the long term.

Positives: 

• Product and geographical diversity
• Progressive dividend policy

Negatives:

• Uncertain economic outlook
• Rising costs

The average rating of stock market analysts:

Buy