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Here's Why You Should Hold Procter & Gamble (PG) for Now
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The Procter & Gamble Company (PG - Free Report) has been gaining from continued strong momentum in its hand soaps, detergents and surface cleaning products along with strength in brands and appropriate strategies. The company’s efforts to boost productivity and cost-saving plans also bode well.
Driven by these factors, it posted better-than-expected first-quarter fiscal 2022 results. While the company has reported an earnings surprise for the past several quarters, this marked the sixth straight quarter of revenues beat. Sales improved on a year-over-year basis in the fiscal first quarter, driven by solid segmental performance coupled with robust volume, pricing and mix. On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 4%, backed by a 2% increase in the shipment volume, a 1% rise in pricing and a positive mix of 1%.
Management anticipates all-in and organic sales growth of 2-4% each for fiscal 2022. The company also expects organic sales growth of more than 8% in the first half of fiscal 2022. It estimates organic sales growth in the second half of fiscal 2022 to be stronger than the first half. Earnings per share (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.
In the past three months, shares of this Zacks Rank #3 (Hold) stock gained 3.4% compared with the industry’s growth of 0.2%.
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Procter & Gamble remains focused on productivity and cost-saving plans through its second five-year (fiscal 2017-2021) $10-billion productivity program. The plan targets cutting costs in areas like supply chain and cost of goods sold (COGS), marketing and digitization, and promotional spend effectiveness. Notably, the company’s core currency-neutral gross and operating margins reflected significant gains from productivity savings and pricing in first-quarter fiscal 2022.
However, the company has been reeling under commodity cost inflation, increased transportation costs, and expenses related to product and packaging investments. The headwinds weighed on margins in the fiscal first quarter, which, in turn, led to a year-over-year decline in the bottom line. Earnings of $1.61 per share declined 1% from core earnings of $1.63 per share in the year-ago quarter. Currency-neutral net earnings per share declined 3%.
Management expects higher commodity and freight costs to persist in fiscal 2022, based on the current industry dynamics. The company noted that input costs and freight costs have continued to rise. As a result, it anticipates an after-tax commodity cost headwind of $2.1 billion and an after-tax headwind of $200 million from freight and transportation costs for fiscal 2022. This is included in the company earnings per share view for fiscal 2022. On a combined basis, the company now expects higher commodity and freight costs to result in a $2.3 billion headwind on earnings, translating into a 90-cents impact on EPS in fiscal 2022.
Conclusion
We believe that although cost headwinds remain, robust top-line growth stemming from brand momentum as well as cost savings plan will aid Procter & Gamble. Topping it, a VGM Score of B and a long-term earnings growth rate of 6.7% reflect its inherent strength.
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Here's Why You Should Hold Procter & Gamble (PG) for Now
The Procter & Gamble Company (PG - Free Report) has been gaining from continued strong momentum in its hand soaps, detergents and surface cleaning products along with strength in brands and appropriate strategies. The company’s efforts to boost productivity and cost-saving plans also bode well.
Driven by these factors, it posted better-than-expected first-quarter fiscal 2022 results. While the company has reported an earnings surprise for the past several quarters, this marked the sixth straight quarter of revenues beat. Sales improved on a year-over-year basis in the fiscal first quarter, driven by solid segmental performance coupled with robust volume, pricing and mix. On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 4%, backed by a 2% increase in the shipment volume, a 1% rise in pricing and a positive mix of 1%.
Management anticipates all-in and organic sales growth of 2-4% each for fiscal 2022. The company also expects organic sales growth of more than 8% in the first half of fiscal 2022. It estimates organic sales growth in the second half of fiscal 2022 to be stronger than the first half. Earnings per share (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.
In the past three months, shares of this Zacks Rank #3 (Hold) stock gained 3.4% compared with the industry’s growth of 0.2%.
Procter & Gamble remains focused on productivity and cost-saving plans through its second five-year (fiscal 2017-2021) $10-billion productivity program. The plan targets cutting costs in areas like supply chain and cost of goods sold (COGS), marketing and digitization, and promotional spend effectiveness. Notably, the company’s core currency-neutral gross and operating margins reflected significant gains from productivity savings and pricing in first-quarter fiscal 2022.
However, the company has been reeling under commodity cost inflation, increased transportation costs, and expenses related to product and packaging investments. The headwinds weighed on margins in the fiscal first quarter, which, in turn, led to a year-over-year decline in the bottom line. Earnings of $1.61 per share declined 1% from core earnings of $1.63 per share in the year-ago quarter. Currency-neutral net earnings per share declined 3%.
Management expects higher commodity and freight costs to persist in fiscal 2022, based on the current industry dynamics. The company noted that input costs and freight costs have continued to rise. As a result, it anticipates an after-tax commodity cost headwind of $2.1 billion and an after-tax headwind of $200 million from freight and transportation costs for fiscal 2022. This is included in the company earnings per share view for fiscal 2022. On a combined basis, the company now expects higher commodity and freight costs to result in a $2.3 billion headwind on earnings, translating into a 90-cents impact on EPS in fiscal 2022.
Conclusion
We believe that although cost headwinds remain, robust top-line growth stemming from brand momentum as well as cost savings plan will aid Procter & Gamble. Topping it, a VGM Score of B and a long-term earnings growth rate of 6.7% reflect its inherent strength.
Better-Ranked Stocks to Consider
Albertsons Companies (ACI - Free Report) , a Zacks Rank #1 (Strong Buy) stock at present, has an expected long-term earnings growth rate of 12%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Helen of Troy (HELE - Free Report) currently has an expected long-term earnings growth rate of 8% and a Zacks Rank #2 (Buy).
Hain Celestial (HAIN - Free Report) , currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 21.2%, on average.