Shares of Procter & Gamble fell sharply early in Friday's session after the consumer products giant reported a mixed quarter. We viewed this action as a form of profit taking – not a reflection of results. The stock entered the session on a four-day winning streak while the broader market fell. Late Friday, when the Dow Jones rose into the green, so did Procter & Gamble stock. Procter & Gamble's sales in the three months ended March 31 rose 1% year over year (3% organic) to $20.195 billion, lower than the $20.408 billion that analysts had expected, according to data provider LSEG. Adjusted earnings per share rose 11% to $1.52, beating analysts' expectations of $1.37. Procter & Gamble Why we own it: We like Procter & Gamble because demand for its household and personal care products doesn't tend to fluctuate based on the economy. It has effectively beaten high inflation over the past two years. With signs of a rally recently and expectations of higher Fed rates for longer, we're pleased to have this defensive stock in our portfolio. Competitors: Colgate-Palmolive, Unilever Weight in club portfolio: 2.6% Last purchase: April 3, 2024 Start: April 7, 2022 The bottom line Sales were weaker than expected, but offset by a 300 basis point improvement in gross margin, leading to a win On profits. Because of that strong profitability, management was able to raise its full-year earnings forecast to a higher range than Wall Street's expectations, even at the low end. Equally important, operating cash flow and free cash flow generation easily exceeded expectations. Cash flow is key to shareholder returns, so we're pleased to see the company report an adjusted result for free cash flow productivity (calculated as operating cash flow excluding capital spending divided by net earnings) of 87%. This allowed management to buy back $1 billion worth of PG stock while paying another $2.3 billion in dividends. Last week, Procter & Gamble raised its dividend by 7%, its 68th consecutive increase (this is also the 134th consecutive year that PG has paid a dividend). In a post-earnings call with investors, CFO Andre Scholten said there was no “noticeable trade-off” for private brands in the U.S., but the company is seeing shoppers trading in P&G products. Trading volumes were affected by the drawdown of some inventories, which is not expected to happen. It acts as a long-term headwind. Scholten expects to see volumes increase beyond the 3% mark it reached this quarter. Foreign exchange has proven to be less of a headwind, and commodity costs are falling. Factor in strong cash flow generation, revised guidance, and improving volumes, and we come away feeling good about Procter & Gamble's future, regardless of the economic backdrop. As a result, we reiterate our #1 rating and raise our price target to $170 (from $168). Procter & Gamble offers best-in-class value, so it can grow profits through a combination of cost control and volume growth (not just higher prices). This will separate P&G from its peers as we work through 2024 and put North America's devastation and China's weakening behind us. PG YTD Mountain Procter & Gamble has said year-to-date guidance management that underlying earnings for fiscal 2024, which excludes one-time items, should grow 10% to 11% through 2023. That's higher than the 8% to 9% previously expected. Based on the full fiscal year 2023 of $5.90, this implies a new range of $6.49 to $6.55, which is a beat against the consensus estimate of $6.46, even at the lower end. For the full year, an overall sales growth rate of 2% to 4% was replicated, as was the organic growth target of 4% to 5%. Expected foreign exchange rate headwinds to sales of 1% to 2% were also confirmed. Net interest expense is still expected to reach $100 million. The impact of currency on results is also diminishing, with management now forecasting a $600 million after-tax loss in fiscal 2024, down from a previously expected headwind of $1 billion. In addition, the team now expects lower commodity costs to reach $900 million after tax, compared to $800 million previously. Quarterly Results As we can see in the earnings table above, sales growth was weaker than expected but the company was able to offset this on the cost side due to lower commodity prices. This resulted in a lower cost of sale and thus a higher than expected gross profit margin. Grooming and Healthcare are read as errors in the chart above, in terms of pre-tax income performance across key sectors. But the misses were very marginal, a fraction of a percentage point below expectations. So, from our point of view, the beauty was the only part that really failed to live up to expectations. This was expected following Ulta Beauty's comments at JPMorgan's recent retail conference. During the call, Scholten said growth across categories remains broad-based, with 8 out of 10 product categories maintaining or growing organic sales in the quarter. In North America, organic sales rose 3% on the back of a 3% volume increase. While this is less than the 4% volume increase in the prior quarter, there was a 1 percentage point headwind from the destruction of retail inventory in the personal healthcare category. In Europe, focused markets rose 7% on the back of a 4% increase in volume, and in Latin America, organic sales rose 17% compared to the same period last year. Weakness continued in Greater China, with organic sales down 10%. However, it is a sequential improvement from the 15% decline in the previous quarter. “We have seen some month-to-month improvement in overall sales trends in Greater China, although we expect it will take another quarter or two for us to return to growth,” Scholten said. (Jim Cramer's Charitable Trust is Long PG. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you'll receive a trade alert before Jim takes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable fund's portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above Investment Club information is subject to our Terms and Conditions and Privacy Policy, as well as our Disclaimer. No obligation or fiduciary duty exists or is created by your receipt of any information provided in connection with the Investment Club. 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In this illustration, Pantene and Head & Shoulders hair products are displayed on July 28, 2023 in San Anselmo, California.
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Procter & Gamble Company Shares fell sharply early in Friday's session after the consumer products giant reported a mixed quarter. We viewed this action as a form of profit taking – not a reflection of results. The stock entered the session on a four-day winning streak while the broader market fell. Late Friday, as well Dao It went into the green, and so did P&G shares.
