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Procter & Gamble (PG) Q4 Earnings & Sales Beat, Stock Rises

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The Procter & Gamble Company (PG - Free Report) has posted better-than-expected fourth-quarter fiscal 2021 results, wherein both earnings and sales improved year over year. Results were driven by robust top-line growth across all segments, offset by a decline in the operating margin. Management issued its outlook for fiscal 2022.

Shares of the company moved up 1.3% in the pre-market session, following the earnings release. We note that shares of this Zacks Rank #4 (Sell) company have gained 3.3% in the past three months compared with the industry’s 1.4% growth.

 

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Procter & Gamble’s earnings of $1.13 per share declined 3% from core earnings of $1.16 per share in the year-ago quarter. The decline can be attributed to lower operating margin and incremental non-core restructuring charges in the base period, offset by net sales growth and lower shares outstanding. However, earnings outpaced the Zacks Consensus Estimate of $1.08. Currency-neutral net earnings per share (EPS) declined 4%.

The company reported net sales of $18,946 million, increasing 7% year over year and surpassing the Zacks Consensus Estimate of $18,339 million. Sales growth was attributed to strength across all segments coupled with robust volume, pricing and mix. Favorable foreign currency aided sales by 3 percentage points.

On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 4%, backed by 1% gain each from an increase in shipment volume, favorable pricing and positive mix. The company reported a positive mix, owing to uneven growth of the Health Care segment and the Skin and Personal Care category, both of which have selling prices higher than the company average. Shipment volumes were aided by strong innovation, offset by a higher base period in some markets and categories due to the pandemic-led rise in consumption.

Net sales for the Beauty, Health Care, Grooming, Fabric & Home Care, and Baby, Feminine & Family Care segments rose 11%, 10%, 18%, 5% and 1%, respectively. All of the company’s business segments reported growth in organic sales, except for the Baby, Feminine and Family Care segment. Organic sales moved up 6% each in Beauty and Grooming, 14% in Health Care, and 2% in Fabric & Home Care. However, organic sales declined 1% in Baby, Feminine and Family Care.

Margins

In the reported quarter, gross margin contracted 260 basis points (bps) to 48.3% from the prior-year core gross margin, including 140 bps of non-core restructuring charges in the base period. Currency had no impact on the gross margin. The decline from the prior-year core gross margin was mainly due to a 210-bps impact from an unfavorable mix, 140 bps of commodity cost inflation, 80 bps of increase in freight costs, and 60 bps of reinvestments and other impacts. This was partly negated by 180 bps productivity savings (100 bps net of increase in freight costs) and 50 bps of pricing gains.

Selling, general and administrative expenses (SG&A), as a percentage of sales, declined 30 bps from the year-ago quarter’s core SG&A expenses to 29.6%. Adverse currency increased SG&A expenses by 20 bps. SG&A expenses declined 60 bps on a currency-neutral basis, owing to 140 bps of savings from overhead and marketing expenses, 100 bps of cost leverage gains due to higher sales, and 40 bps of other benefits. This was partly offset by a 170-bps increase in marketing investments, and 50 bps of wage inflation, higher incentive compensation and other effects.

Operating margin declined 230 bps from the prior-year core operating margin to 18.7%, including 130 bps of non-core restructuring charges in the base period. Unfavorable currency hurt operating margin by 20 bps. On a currency-neutral basis, operating margin contracted 210 bps. The headwinds were partly offset by 320 bps of productivity cost savings (240 bps net of higher freight costs).

Financials

Procter & Gamble ended the reported quarter with cash and cash equivalents of $10,288 million, long-term debt of $23,099 million, and total shareholders’ equity of $46,654 million.

The company generated operating cash flow of $4.1 billion in fourth-quarter fiscal 2021 and $18,371 million in fiscal 2021. Free cash flow productivity was 117% in the fiscal fourth quarter and 107% for fiscal 2021.

The company returned $19.3 billion in cash to its shareholders in fiscal 2021. This included $8.3 billion of dividend payouts and $11 billion of share buybacks.

Fiscal 2021 Guidance

Management issued its guidance for fiscal 2022. The company anticipates all-in and organic sales growth of 2-4% each. Currency movements are likely to remain neutral to slightly positive to all-in sales growth in fiscal 2022.

EPS, on a reported basis, is expected to increase 6-9%, whereas it 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 $100 million from higher commodity costs and freight costs, partially offset by gains from favorable foreign exchange. Commodity and freight costs and foreign exchange gains are likely to hurt fiscal 2022 EPS by 70 cents per share, on a combined basis. This is expected to translate into a 12-percentage-point headwind on EPS growth.

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

Adjusted free cash flow productivity is estimated to be 90% for fiscal 2022. 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 $7-$9 billion for fiscal 2022.

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