It has been about a month since the last earnings report for Procter & Gamble (PG Quick QuotePG - Free Report) . Shares have lost about 1.4% in that time frame, outperforming 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 catalysts.

Procter & Gamble Beats on Q2 Earnings & Sales, Ups View

Procter & Gamble posted better-than-expected second-quarter fiscal 2022 results. The top and bottom lines not only surpassed the Zacks Consensus Estimate but also grew year over year. Results were driven by improved productivity amid cost headwinds along with the rising demand for cleaning products due to the resurgence of COVID-19 cases. Encouragingly, management lifted its fiscal 2022 outlook.

Q2 in Detail

Procter & Gamble’s adjusted earnings of $1.66 per share inched up 1% from core earnings of $1.64 per share in the year-ago quarter. This can be attributable to higher sales and lower outstanding shares. The figure also outpaced the Zacks Consensus Estimate of $1.65. Currency-neutral net EPS rose 2% year over year.

The company reported net sales of $20,953 million, increasing 6% year over year and surpassing the Zacks Consensus Estimate of $20,324 million. Sales growth was attributed to strength across all segments coupled with robust volume and pricing gains, which offset higher commodity and freight costs.

On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 6%, backed by a 3% increase in the shipment volume and a 3% rise in pricing, which more than offset rising input and commodity costs.

Net sales for the Beauty, Grooming, Fabric & Home Care, Health Care, and Baby, Feminine & Family Care segments increased 3%, 4%, 7%, 8% and 5%, respectively. All of the company’s business segments reported growth in organic sales. Organic sales moved up 8% each in Fabric & Home Care, and Health Care; 5% each in Grooming, and Baby, Feminine & Family Care; and 2% in Beauty.

Margins

In the reported quarter, the gross margin contracted 400 basis points (bps) to 49.1%. Currency had a 0.1% negative impact on the gross margin. The currency-neutral gross margin declined 410 bps to 49%. The decline in the gross margin was mainly due to a 140-bps impact of an unfavorable mix, 400 bps of commodity cost inflation, a 60-bps increase in transportation costs, and 20 bps from product and packaging investments, and other impacts. This was partly negated by 80 bps of gross manufacturing productivity savings and 130 bps of pricing gains.

Selling, general and administrative expenses (SG&A), as a percentage of sales, declined 150 bps from the year-ago quarter to 24.4%. Adverse currency increased SG&A expenses by 0.2%. SG&A expenses declined 170 bps on a currency-neutral basis, owing to 70 bps of savings from overhead and marketing expenses, and 150 bps of cost leverage gains, partly offset by a 50-bps increase in marketing and overhead investments.

The operating margin declined 250 bps from the prior year to 24.7%. Favorable currency hurt the operating margin by 0.1%. On a currency-neutral basis, the operating margin contracted 240 bps to 24.8%. The headwinds were partly offset by 150 bps of productivity cost savings.

Financials

Procter & Gamble ended the reported quarter with cash and cash equivalents of $10,288 million, long-term debt of $22,322 million, and total shareholders’ equity of $44,893 million.

The company generated an operating cash flow of $5,121 million in second-quarter fiscal 2022 and adjusted free cash flow of $4,495 million. Adjusted free cash flow productivity was 106% in the fiscal second quarter.

The company returned $7 billion in cash to its shareholders in the fiscal second quarter. This included $2 billion of dividend payouts and $5 billion of share buybacks.

Fiscal 2022 Guidance

Driven by the solid results, management raised its fiscal 2022 guidance. The company anticipates all-in sales growth of 3-4%, up from the previously mentioned 2-4%. Organic sales are likely to increase 4-5%, up from the earlier stated 2-4%. Currency movements are expected to negatively impact all-in sales growth by 1%.

EPS, on a reported basis, is expected to increase 6-9%, whereas the company 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 $2.3 billion from higher commodity costs, $300 million from higher freight costs and $200 million from unfavorable currency. Commodity and freight costs are likely to hurt fiscal 2022 EPS by $1.10 per share on a combined basis.

The company projects a core effective tax rate of 18-19% for fiscal 2022. It expects capital expenditure to be 4-5% of net sales in fiscal 2022. Adjusted free cash flow productivity is estimated to be 95% for fiscal 2022, up from the previously communicated 90%. 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 $9-$10 billion in fiscal 2022.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, P&G has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, P&G has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.