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Procter & Gamble (PG) Beats on Q3 Earnings and Sales, Ups View

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The Procter & Gamble Company (PG - Free Report) has reported better-than-expected top and bottom lines in third-quarter fiscal 2023. Sales and earnings improved year over year. The company’s organic sales grew, driven by robust pricing and a favorable mix, along with strength across segments.

Shares of the company gained 1.6% in the pre-market session, following the better-than-expected top and bottom lines, and the raised sales view.

Procter & Gamble’s earnings of $1.37 per share increased 3% from $1.33 in the year-ago quarter. The figure also beat the Zacks Consensus Estimate and our estimate of $1.32. Currency-neutral core earnings per share (EPS) rose 13% year over year.

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

The company has reported net sales of $20,068 million, up 4% year over year. Sales surpassed the Zacks Consensus Estimate of $19,295 million and our estimate of $18,824.6 million. The increase in sales can be attributed to growth across all segments. Currency impacted net sales by 4%.

On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 7%, backed by a 10% rise in pricing and a 1% gain from a positive product mix, offset by a 3% decline in volume.

Net sales increased 3% for Beauty, 1% for Grooming, 6% for Health Care, 5% for Fabric & Home Care, and 3% for the Baby, Feminine & Family Care segments. All the company’s business segments have reported growth in organic sales. Organic sales rose 7% each for Beauty and Grooming segments, 9% each for the Fabric & Home Care and Health Care segments, and 6% for the Baby, Feminine & Family Care segment.

Shares of the Zacks Rank #3 (Hold) company have gained 7% in the past three months compared with the industry’s 6.3% rally.

 

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Margins

In the reported quarter, the gross margin increased 150 basis points (bps) to 48.2%. Favorable currency rates aided the gross margin by 0.7%. The currency-neutral gross margin improved 220 bps to 48.9%. The increase in the gross margin was driven by 470 bps of pricing gains and 210 bps of gross productivity savings, offset by 270-bps commodity and input material cost inflation, a 140-bps impact of negative product mix, and 50-bps of product reinvestments and other impacts.

Selling, general and administrative expenses (SG&A), as a percentage of sales, expanded 100 bps from the year-ago quarter to 27%. Currency hurt the SG&A expense rate by 0.5%. The SG&A expense rate improved 50 bps to 26.5% on a currency-neutral basis, owing to 310 bps of marketing investments, inflation and other impacts, offset by a 180-bps net sales growth leverage and 80-bps of productivity savings.

The operating margin rose 40 bps from the prior year to 21.2%. Currency rates aided the operating margin by 1.2%. On a currency-neutral basis, the operating margin expanded 160 bps to 22.4%. The operating margin included gross productivity savings of 290 bps.

Financials

Procter & Gamble ended third-quarter fiscal 2023 with cash and cash equivalents of $7,596 million, long-term debt of $22,874 million, and total shareholders’ equity of $45,421 million.

The company generated an operating cash flow of $3,863 million in third-quarter fiscal 2023 and an adjusted free cash flow of $3,133 million. Adjusted free cash flow productivity was 92% in the fiscal third quarter.

It returned $3.6 billion of value to its shareholders in the fiscal third quarter. This included $2.2 billion of dividend payouts and $1.4 billion of share buybacks.

Fiscal 2023 Guidance

Management has raised its sales view for fiscal 2023, while it retained its earnings outlook. For fiscal 2023, the company anticipates year-over-year all-in sales growth of 1% compared with down 1% and flat stated earlier. Organic sales are likely to increase 6% in fiscal 2023 versus 4-5% growth mentioned earlier. Currency movements are expected to negatively impact all-in sales growth by 5%.

The company has retained its view for fiscal 2023 EPS. It expects reported EPS to be flat to up 4% from the $5.81 reported in fiscal 2022. However, the company expects EPS at the low end of the prior-mentioned range due to the ongoing commodity and material cost headwinds, and currency impacts.

The current earnings view includes after-tax impacts of $1.3 billion related to unfavorable currency movements, and $2.2 billion of impacts of higher commodity and material costs. This equates to a $3.5-billion after-tax impact on net income, implying a $1.40-per-share impact on EPS or a 24-percentage-point headwind on EPS growth. The revised $3.5-billion headwind marks a modest sequential improvement from the company’s prior view of $3.7 billion.

Procter & Gamble expects the net impact of interest expenses and interest income to be $125 million before tax earnings headwind for fiscal 2023. The company projects a core effective tax rate of 20% for fiscal 2023. It expects capital expenditure to be 4% of net sales in fiscal 2023.

Adjusted free cash flow productivity is estimated to be 90% for fiscal 2023. The company intends to make dividend payments of $9 billion, along with share repurchases of $7.4-$8 billion in fiscal 2023.

Here’s How Better-Ranked Stocks Fared

We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Inter Parfums (IPAR - Free Report) , Nu Skin Enterprises (NUS - Free Report) and Colgate-Palmolive (CL - Free Report) .

Inter Parfums currently sports a Zacks Rank #1 (Strong Buy) and has an expected long-term earnings growth rate of 15%. IPAR has a trailing four-quarter earnings surprise of 36.2%, on average. The company has risen 38.5% in the past three months.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and EPS suggests growth of 10.5% and 0.8%, respectively, from the year-ago reported numbers. The consensus mark for IPAR’s EPS has been unchanged in the past 30 days.

Nu Skin currently carries a Zacks Rank of 2 (Buy). NUS has a trailing four-quarter earnings surprise of 7.4%, on average. The company has declined 2.3% in the past three months.

The Zacks Consensus Estimate for NUS’ current financial year’s sales and earnings suggests declines of 5.7% and 11%, respectively, from the prior-year reported numbers. The consensus mark for NUS’ EPS has moved up by a penny in the past seven days.

Colgate currently carries a Zacks Rank #2. CL has a trailing four-quarter earnings surprise of 0.4%, on average. It has a long-term earnings growth rate of 6.2%. The company has increased 1.2% in the past three months.

The Zacks Consensus Estimate for Colgate’s current financial year’s sales and EPS suggests growth of 5% and 4.4%, respectively, from the year-ago reported numbers. The consensus mark for CL’s EPS has been unchanged in the past 30 days.

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