ii view: Procter & Gamble shares target new high after upgrade to forecasts

This owner of brands from Head & Shoulders to Lenor has increased its dividend 67 years running, and its shares are not from from record territory. Buy, sell, or hold? 

Third-quarter results to 31 March

• Net sales up 4% to $20.1 billion
• Earnings Per Share (EPS) up 3% to $1.37
• Quarterly dividend up 3% from the prior quarter to $0.9407 per share

Chief executive Jon Moeller said:

“We delivered strong results in the third quarter of fiscal year 2023 in what continues to be a very difficult cost and operating environment. 

“We remain committed to our integrated strategies of a focused product portfolio of daily use categories where performance drives brand choice, 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 detailed sales and earnings which beat Wall Street hopes, helping it upgrade full-year sales and share buyback expectations. 

Product price hikes countered lower customer demand volumes, pushing third quarter revenue up 4% to $20.1 billion and ahead of forecasts for $19.3 billion. The owner of brands including Aerial, Fairy and Gillette now expects to spend $7.4-$8 billion on its full-year share buybacks, up from a previous $6-$8 billion. 

The Dow Jones constituent rose by more than 3% in US trading having come into this latest news down around 7% over the last year. That’s similar to Colgate-Palmolive Co (NYSE:CL) and marginally below a fall of 3% for the Dow index itself. P&G shares are now less than $10 from their record high just above $165, set in 2022.

Procter competes against the likes of Unilever (LSE:ULVR) in making and selling an array of branded personal consumer goods products such as shampoos and home care items like washing powder. 

Third-quarter earnings for P&G rose 3% year-over-year to $1.37 per share, surpassing forecasts closer to $1.32 and aided by higher revenues and a continued focus on productivity improvements. 

Organic volumes fell across all of its product categories apart from health care and including its toothpaste brands Crest and Oral-B, where they gained 1%. 

Stripping out acquisitions, organic full year sales growth is now expected to come in at around 6%, up from a prior 4-5%. 

Earlier in April, P&G declared a quarterly dividend of $0.9407 per share, up 3% from the prior quarter. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares following the results. 

ii view:

Started in 1837, P&G today operates in around 70 countries, employing over 100,000 people.  Fabric & Home Care generate its biggest slug of sales at around 35%, followed by Baby, Feminine and Family care at 25%, Beauty at 18%, Healthcare at 14% and Grooming the balance of 8%. Geographically, North America accounts for just under half of overall sales, followed by Europe at 21%, China 10% and the rest of the world the balance.

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For investors, an uncertain economic outlook, including higher interest rates and a cost-of-living crisis, now offer a tough backdrop for its customers. Costs for businesses remain elevated, environmental factors deserve consideration, while major stockists of its products such as Tesco (LSE:TSCO) and Sainsbury (J) (LSE:SBRY) in the UK continue to push their own label product range.  

On the upside, P&G’s long list of household goods feature regularly for shoppers globally. Management initiatives to sharpen productivity persist, while a forecast dividend yield of around 2.5% is not to be ignored, particularly given its payment of a dividend for over 130 consecutive years since its incorporation in 1890. 

For now, P&G continues to remain worthy of a position in many already diversified long-term focused portfolios.   

Positives: 

• Product and geographical diversity
• Progressive dividend policy

Negatives:

• Uncertain economic outlook
• Currency movements can hinder performance

The average rating of stock market analysts:

Buy