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P&G flexes its pricing power again in its latest quarter. Wall Street rewards the stock
Procter & Gamble (PG) on Wednesday morning reported fiscal 2024 first-quarter results that topped Wall Street estimates and checked key boxes on our investment rubric. Sales in the three months ended Sept. 30 increased 6% year over year to $21.87 billion, exceeding the $21.58 billion expected by analysts, according to LSEG, formerly known as Refinitiv. Adjusted earnings per share (EPS) of $1.83 topped analyst forecasts of $1.72 and was 17% higher compared to the year-ago period. Dow stock P & G rose nearly 2% in Wednesday’s terrible market. At one point, shares of the Club name had climbed more than 3%. PG YTD mountain Procter & Gamble YTD Bottom line Procter & Gamble turned in a strong fiscal 2024 first quarter, showcasing its consistency and reliability in an economic environment chock full of obstacles. And, most importantly, it was able to grow profitability without sacrificing much in the way of sales volume. The consumer staples behemoth — known for Tide laundry products, Crest toothpaste and Pampers diapers — once again pushed through higher prices on its products without eroding demand. Prices were up 7% in the quarter compared with a year ago, while volumes fell only 1%. It’s a combination that ultimately helped P & G deliver 7% organic sales growth in the period, marking eight consecutive quarters in which that metric exceeded 5%. These higher prices, coupled with relief on some input costs and productivity gains, translated into expanding margins at P & G — a dynamic that’s central to why we’re invested in the company. Gross profit margin in fiscal Q1 of 52% and operating profit margin of 26.4% both exceeded expectations and were up considerably year over year. While weakness in China and a strengthening U.S. dollar present near-term challenges to P & G’s business, its latest quarterly results underscore the appeal its products have with consumers even at elevated price points. The company steadily invests in innovation and prides itself on putting superior products on the shelves, establishing a value proposition that leads to pricing power despite a tough economic landscape. P & G’s earnings arrived at a challenging time for the broader consumer staples sector , as investors fret about the impact of GLP-1s, a new class of weight-loss drugs like Wegovy, could have on food-and-beverage consumption patterns . Entering Wednesday’s session, the consumer staples sector overall was down 7.84% over the past three months, compared with a 2.9% decline for the S & P 500 overall during that same stretch. The bond market has only worsened the situation for consumer staples stocks. Income-seeking investors historically flock to companies in the sector for their dividends. But the recent rise in U.S. Treasury yields has reduced the relative attractiveness of those coveted quarterly payouts. That’s put pressure on the broader consumer staples sector and other pockets of the equity market viewed as bond proxies, such as utilities . P & G is not immune to the bond market machinations — but fortunately, it should remain above the fray on the GLP-1s overhang because its products fall in the grooming, personal hygiene and home-care markets. The latter point is likely a major reason why P & G is the fourth-best performing consumer staple stock over the past three months, down 1.83% in that stretch coming into Wednesday’s trading. Only Walmart (up 4.2%), Club fellow holding Costco Wholesale (up 3.9%) and Bunge Limited (up 3.4%) had performed better. P & G’s results Wednesday demonstrate that its recent outperformance compared with its staples peers is justified. Guidance Procter & Gamble maintained its full-year organic sales growth forecast of 4% to 5% and its earnings-per-share outlook of between $6.25 to $6.43, which would represent 6% to 9% growth from fiscal 2023. P & G is on track to be at the high end of those ranges for both EPS and organic sales growth, CFO Andre Schulten said on the post-earnings call. Organic sales exclude the impact of acquisitions, divestitures and foreign exchange. However, P & G tweaked its overall sales expectations for fiscal 2024, which management said reflects the impact of the stronger U.S. dollar. Revenue is now expected to grow between 2% and 4% from the prior 3% to 4% range. P & G expects foreign-exchange headwinds to total $1 billion after taxes in fiscal 2024, a sharp increase from the $400 million drag management previously expected. The adjustment follows a more-than-4% rise in the U.S. dollar index — which measures the greenback against six other currencies including the euro and Japanese yen – since P & G’s earnings call in late July. The currency headwinds are expected to wipe out the $800 million benefit on commodity costs that P & G expects to experience in this fiscal year. That commodity tailwind remains unchanged from its July forecast, despite higher fuel costs. Additionally, higher net interest expense is still expected to be a roughly $200 million after-tax earnings headwind. Put it all together, and we’re not surprised P & G merely maintained its fiscal 2024 EPS outlook because it’s still early in the year. But when considering the additional $600 million in currency headwinds, the fact P & G felt comfortable sticking with its full-year profit outlook is comforting. It suggests its underlying business is performing well. Quarterly commentary Procter & Gamble delivered on key metrics such as gross margins and organic sales growth. Gross margins in the quarter checked in at 52%, exceeding the Wall Street estimate of 49.3%. It also represents a 461 basis point, or 4.61 percentage point, increase from the year-ago quarter, as the Cincinnati-based firm benefits from higher sales prices, lower commodity costs and productivity gains. Organic sales increased 7% in the three months ended Sept. 30. Unpacking that figure, P & G saw a 7% boost from higher pricing and a 1% gain from a favorable mix of products sold — balanced against a 1% drop in volumes globally. Organic sales growth was highest in P & G’s health-care division, rising 10% to $3.07 billion. That segment includes Vicks’ over-the-counter medicines and Pepto-Bismol. The company’s beauty segment — home to shampoo brands like Pantene and Head & Shoulders, as well as Olay skincare — saw the weakest organic sales growth, increasing only 5% to $4.1 billion. That came in below the $4.6 billion expected by analysts. While P & G has now experienced six straight quarters of companywide volume declines, the fiscal 2024 first-quarter performance is encouraging for a few reasons. Among them is that volume in the U.S. — the company’s largest market — has now grown for two quarters in a row. Secondly, excluding declines in China, P & G’s volume was up in the rest of the world. Consumers in Western Europe remain relatively resilient, Schulten said, while describing P & G’s business in Latin America as “on fire.” Sales in the latter market grew 19% in the quarter. Schulten acknowledged there’s considerable uncertainty around the trajectory of the economic recovery in China. P & G is “hoping for faster, but we’re prepared for longer,” the CFO said, stressing over the long term the company still views the market attractively. Despite the China overhang, management said P & G remains on track to grow global volumes modestly in fiscal 2024 — an important trend to watch as the year progresses and the benefit from previous rounds of price hikes fades. One apparent negative in fiscal Q1 was P & G’s selling, general and administrative expenses, which totaled $5.6 billion. That’s nearly $400 million more than Wall Street expected the company to spend in the period. However, increased marketing is part of that figure, and management emphasized a willingness to spend on advertising to highlight its products and grow the number of households that buy them. P & G paid out $2.3 billion in dividends in its fiscal first quarter while repurchasing $1.5 billion worth of common stock. (Jim Cramer’s Charitable Trust is long PG, LLY. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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Boxes of Crest toothpaste owned by the Procter & Gamble company are seen on a store shelf on October 20, 2020 in Miami, Florida.
Joe Raedle | Getty Images
Procter & Gamble (PG) on Wednesday morning reported fiscal 2024 first-quarter results that topped Wall Street estimates and checked key boxes on our investment rubric.
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