It has been about a month since the last earnings report for Procter & Gamble (
PG Quick Quote PG - Free Report) . Shares have lost about 2.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is P&G due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Procter & Gamble Q1 Earnings & Sales Beat
Procter & Gamble, popularly known as P&G, has reported better-than-expected top and bottom lines in first-quarter fiscal 2021. Moreover, both earnings and sales have improved year over year. Results have been driven by robust top-line growth as well as improved margins. Driven by the robust results, the company has raised its outlook for fiscal 2021.
Procter & Gamble’s earnings of $1.63 per share rose 19% year over year and outpaced the Zacks Consensus Estimate of $1.43 on the back of sturdy sales growth and improved operating margin. Meanwhile, currency-neutral core earnings per share (EPS) have increased 22%. The company reported net sales of $19,318 million, increasing 9% year over year and surpassing the Zacks Consensus Estimate of $18,329.8 million. Sales growth was attributed to strength across all segments coupled with robust shipments, pricing and mix. Currency headwinds hurt the top line by one percentage point. Net sales for the Beauty; Health Care; Grooming; Fabric & Home Care; and Baby, Feminine and Family Care segments rose 7%, 5%, 11%, 14% and 3%, respectively. On an organic basis (excluding the impact of acquisitions, divestitures and foreign exchange), revenues improved 9% based on a 7% rise in organic shipment volume as well as one percentage point each gain in pricing and mix. The company reported a positive mix, owing to uneven growth of premium home, health and hygiene products along with strength in the North American business mainly due to an increase in the pandemic-led consumption and inventory. Moreover, all of the company’s business segments reported growth in organic sales. Organic sales moved up 7% in the Beauty segment, 6% in Grooming, 12% in Health Care, 14% in Fabric & Home Care and 4% in the Baby, Feminine and Family Care segment. Margins
In the reported quarter, gross margin expanded 140 basis points (bps) year over year to 52.7%, including 30 bps of adverse impacts of foreign currency. On a currency-neutral basis, gross margin expanded 170 bps, owing to benefits from gross productivity savings, higher pricing, fixed cost leverage and commodity cost declines. This was partly offset by unfavorable product mix and other costs.
Selling, general and administrative expenses (SG&A), as a percentage of sales, declined 170 bps from the year-ago quarter core SG&A expenses, to 25.3%. Adverse currency negatively impacted SG&A expenses by 10 bps. The metric dropped 180 bps on a currency-neutral basis. This can be attributable to gains robust sales leverage, and savings from overhead and marketing costs, offset by marketing reinvestments, inflation and other expenses. Moreover, operating margin expanded 300 bps from the year-ago quarter’s core operating margin. Unfavorable currency hurt operating margin by 50 bps. On a currency-neutral basis, the metric improved 350 bps, driven by 230 bps of total productivity cost savings. Financials
Procter & Gamble ended the reported quarter with cash and cash equivalents of $13,392 million, long-term debt of $23,948 million, and total shareholders’ equity of $48,576 million. Cash flow from operating activities amounted to $4,739 million for first-quarter fiscal 2021. Moreover, adjusted free cash flow productivity was 95%.
Furthermore, the company returned $4 billion of cash to its shareholders in the fiscal first quarter. This included $2 billion each of dividend payouts and share buybacks. Fiscal 2021 Guidance
Driven by the strong fiscal first-quarter results, management raised its guidance for fiscal 2021. The company now anticipates all-in sales growth of 3-4% compared with the earlier mentioned of a 1-3% increase. It now predicts organic sales growth of 4-5% versus a 2-4% rise mentioned earlier. Unfavorable currency is expected to affect sales by 1% in fiscal 2021.
Further, earnings per share on a reported basis are now expected to grow 4-9% compared with 6-10% growth stated previously. The revised GAAP earnings per share guidance takes into account non-core charges of 15-20 cents per share due to the early debt retirement project adopted early this month. Core earnings per share for fiscal 2021 are now projected to grow 5-8% compared with a 3-7% increase mentioned earlier. This view takes into account an after-tax headwind of $325 million due to currency woes and $50 million from higher freight costs. This is likely to be partly offset by $175 of estimated after-tax gains from lower commodity costs. Adjusted free cash flow productivity is estimated to be 95% for fiscal 2021. In addition to this, the company anticipates returning $15-$17 billion of cash to shareholders in fiscal 2021, including dividend payments of $8 billion. It raised its share repurchases outlook to $7-$9 million for fiscal 2021 compared with $6-$8 billion stated earlier. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
At this time, P&G has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise P&G has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.