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The Procter & Gamble Company (PG - Free Report) has posted fourth-quarter fiscal 2022 results, wherein the top line beat the Zacks Consensus Estimate, while the bottom line missed. However, earnings and sales improved year over year. Results have been driven by higher sales, robust pricing and a favorable mix. Improved productivity amid cost headwinds has also aided the results. Management has issued the fiscal 2023 view.
We note that shares of the Zacks Rank #4 (Sell) company have gained 4.1% in the past year against the industry’s 2.9% decline.
Image Source: Zacks Investment Research
Q4 in Detail
Procter & Gamble’s core earnings of $1.21 per share increased 7% from $1.13 in the year-ago quarter. This can be attributable to higher sales and lower outstanding shares, partly offset by a lower operating margin. The figure missed the Zacks Consensus Estimate of $1.23. Currency-neutral net EPS rose 12% year over year.
The company has reported net sales of $19,515 million, increasing 3% year over year and surpassing the Zacks Consensus Estimate of $19,393 million. Sales growth was attributed to strength across all segments, except for Grooming and Beauty, as well as robust pricing and a favorable mix.
On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 7%, backed by an 8% rise in pricing, offset by a 1% decline in volume due to the pandemic-led lockdowns in Greater China and reduced operations in Russia. The company’s product mix was neutral to sales growth in the quarter.
Net sales for the Fabric & Home Care, Health Care, and Baby, Feminine & Family Care segments increased 5%, 4% and 3%, respectively. Meanwhile, sales for the Beauty and Grooming segments declined 1% and 3%, respectively. All of the company’s business segments have reported growth in organic sales, except for Beauty. Organic sales rose 3% for Grooming, 9% each for Fabric & Home Care, and Health Care segments, and 7% for the Baby, Feminine & Family Care segment. Organic sales for the Beauty segment were flat with the last year.
Procter & Gamble Company The Price, Consensus and EPS Surprise
In the reported quarter, the gross margin contracted 370 basis points (bps) to 44.6%. Unfavorable currency rates reduced the gross margin by 0.4%. The currency-neutral gross margin declined 330 bps to 45%. The decline in the gross margin was mainly due to a 450-bps commodity cost inflation, an 80-bps increase in freight costs, a 40-bps other cost increase net of productivity savings, a 130-bps negative product mix, and 20 bps from product and packaging investments. This was partly negated by 390 bps of pricing gains.
Selling, general and administrative expenses (SG&A), as a percentage of sales, declined 340 bps from the year-ago quarter to 26.2%. Adverse currency hurt SG&A expenses by 0.1%. SG&A expenses declined 350 bps to 26.1% on a currency-neutral basis, owing to 180 bps of leverage benefit due to higher sales, and 200 bps of overhead savings and marketing efficiencies, offset by 30 bps of other impacts.
The operating margin declined 30 bps from the prior year to 18.4%. Currency rates aided the operating margin by 0.5%. On a currency-neutral basis, the operating margin expanded 20 bps to 18.9%, driven by productivity cost savings.
Financials
Procter & Gamble ended fiscal 2022 with cash and cash equivalents of $7,214 million, long-term debt of $22,848 million, and total shareholders’ equity of $46,854 million.
The company generated an operating cash flow of $3,713 million in fourth-quarter fiscal 2022 and an adjusted free cash flow of $3,021 million. Adjusted free cash flow productivity was 99% in the fiscal fourth quarter. In fiscal 2022, the company generated an operating cash flow of $16,723 million, with an adjusted free cash flow of $13,792 million. Adjusted free cash flow productivity was 93% in fiscal 2022.
It returned $19 billion of value to its shareholders in fiscal 2022. This included $8.8 billion of dividend payouts and $10 billion of share buybacks.
Fiscal 2023 Guidance
Management has issued a favorable view for fiscal 2023. The company anticipates all-in sales to be flat-up 2% from the prior year. Organic sales are likely to increase 3.5% in fiscal 2023. Currency movements are expected to negatively impact all-in sales growth by 3%.
The company expects reported EPS to be flat to up 4% from $5.81 reported in fiscal 2022. At the mid-point of the guided range, EPS is expected to be $5.93, suggesting 2% growth. The current earnings view takes into account $3.3 billion of after-tax impacts related to unfavorable currency movements, higher commodity costs and higher freight costs. This equates to a $1.33-per-share or a 23-percentage-point impact from the aforementioned headwinds. It expects the impacts of these headwinds to be more pronounced in the first half of fiscal 2023.
Procter & Gamble projects a core effective tax rate of 19-19.5% for fiscal 2023. It expects capital expenditure to be 5% of net sales in fiscal 2023.
Adjusted free cash flow productivity is estimated to be 90% for fiscal 2023. The company intends to make dividend payments of more than $9 billion, along with share repurchases of $6-$8 billion in fiscal 2023.
Here’s How Better-Ranked Stocks Fared
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Fomento Economico Mexicano (FMX - Free Report) , The Duckhorn Portfolio (NAPA - Free Report) and Brown-Forman (BF.B - Free Report) .
Fomento Economico Mexicano, alias FEMSA, currently sports a Zacks Rank of 1 (Strong Buy). FMX has a trailing four-quarter earnings surprise of 3.9%, on average. It has a long-term earnings growth rate of 8.8%. The company has lost 28.4% in the past year.
The Zacks Consensus Estimate for FEMSA’s current financial-year sales suggests growth of 11.3%, whereas earnings estimates indicate a decline of 3.8% from the prior-year reported number. The consensus mark for FMX’s earnings per share has moved up 3.6% in the past 30 days.
Duckhorn currently has a Zacks Rank #2 (Buy) and an expected long-term earnings growth rate of 12.2%. NAPA has a trailing four-quarter earnings surprise of 94.4%, on average. The company has declined 14.7% in the past year.
The Zacks Consensus Estimate for Duckhorn’s current financial-year sales and earnings per share suggests growth of 10.8% and 6.9%, respectively, from the year-ago reported numbers. The consensus mark for NAPA’s earnings per share has been unchanged in the past 30 days.
Brown-Forman currently carries a Zacks Rank #2. BF.B has a trailing four-quarter earnings surprise of 8.1%, on average. The company has risen 3.8% in the past year.
The Zacks Consensus Estimate for Brown-Forman’s current financial year’s sales and earnings per share suggests growth of 7.2% and 14.4%, respectively, from the year-ago reported numbers. The consensus mark for BF.B’s earnings per share has been unchanged in the past 30 days.
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Procter & Gamble (PG) Q4 Earnings Miss, Sales Beat Estimates
The Procter & Gamble Company (PG - Free Report) has posted fourth-quarter fiscal 2022 results, wherein the top line beat the Zacks Consensus Estimate, while the bottom line missed. However, earnings and sales improved year over year. Results have been driven by higher sales, robust pricing and a favorable mix. Improved productivity amid cost headwinds has also aided the results. Management has issued the fiscal 2023 view.
We note that shares of the Zacks Rank #4 (Sell) company have gained 4.1% in the past year against the industry’s 2.9% decline.
Image Source: Zacks Investment Research
Q4 in Detail
Procter & Gamble’s core earnings of $1.21 per share increased 7% from $1.13 in the year-ago quarter. This can be attributable to higher sales and lower outstanding shares, partly offset by a lower operating margin. The figure missed the Zacks Consensus Estimate of $1.23. Currency-neutral net EPS rose 12% year over year.
The company has reported net sales of $19,515 million, increasing 3% year over year and surpassing the Zacks Consensus Estimate of $19,393 million. Sales growth was attributed to strength across all segments, except for Grooming and Beauty, as well as robust pricing and a favorable mix.
On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 7%, backed by an 8% rise in pricing, offset by a 1% decline in volume due to the pandemic-led lockdowns in Greater China and reduced operations in Russia. The company’s product mix was neutral to sales growth in the quarter.
Net sales for the Fabric & Home Care, Health Care, and Baby, Feminine & Family Care segments increased 5%, 4% and 3%, respectively. Meanwhile, sales for the Beauty and Grooming segments declined 1% and 3%, respectively. All of the company’s business segments have reported growth in organic sales, except for Beauty. Organic sales rose 3% for Grooming, 9% each for Fabric & Home Care, and Health Care segments, and 7% for the Baby, Feminine & Family Care segment. Organic sales for the Beauty segment were flat with the last year.
Procter & Gamble Company The Price, Consensus and EPS Surprise
Procter & Gamble Company The price-consensus-eps-surprise-chart | Procter & Gamble Company The Quote
Margins
In the reported quarter, the gross margin contracted 370 basis points (bps) to 44.6%. Unfavorable currency rates reduced the gross margin by 0.4%. The currency-neutral gross margin declined 330 bps to 45%. The decline in the gross margin was mainly due to a 450-bps commodity cost inflation, an 80-bps increase in freight costs, a 40-bps other cost increase net of productivity savings, a 130-bps negative product mix, and 20 bps from product and packaging investments. This was partly negated by 390 bps of pricing gains.
Selling, general and administrative expenses (SG&A), as a percentage of sales, declined 340 bps from the year-ago quarter to 26.2%. Adverse currency hurt SG&A expenses by 0.1%. SG&A expenses declined 350 bps to 26.1% on a currency-neutral basis, owing to 180 bps of leverage benefit due to higher sales, and 200 bps of overhead savings and marketing efficiencies, offset by 30 bps of other impacts.
The operating margin declined 30 bps from the prior year to 18.4%. Currency rates aided the operating margin by 0.5%. On a currency-neutral basis, the operating margin expanded 20 bps to 18.9%, driven by productivity cost savings.
Financials
Procter & Gamble ended fiscal 2022 with cash and cash equivalents of $7,214 million, long-term debt of $22,848 million, and total shareholders’ equity of $46,854 million.
The company generated an operating cash flow of $3,713 million in fourth-quarter fiscal 2022 and an adjusted free cash flow of $3,021 million. Adjusted free cash flow productivity was 99% in the fiscal fourth quarter. In fiscal 2022, the company generated an operating cash flow of $16,723 million, with an adjusted free cash flow of $13,792 million. Adjusted free cash flow productivity was 93% in fiscal 2022.
It returned $19 billion of value to its shareholders in fiscal 2022. This included $8.8 billion of dividend payouts and $10 billion of share buybacks.
Fiscal 2023 Guidance
Management has issued a favorable view for fiscal 2023. The company anticipates all-in sales to be flat-up 2% from the prior year. Organic sales are likely to increase 3.5% in fiscal 2023. Currency movements are expected to negatively impact all-in sales growth by 3%.
The company expects reported EPS to be flat to up 4% from $5.81 reported in fiscal 2022. At the mid-point of the guided range, EPS is expected to be $5.93, suggesting 2% growth. The current earnings view takes into account $3.3 billion of after-tax impacts related to unfavorable currency movements, higher commodity costs and higher freight costs. This equates to a $1.33-per-share or a 23-percentage-point impact from the aforementioned headwinds. It expects the impacts of these headwinds to be more pronounced in the first half of fiscal 2023.
Procter & Gamble projects a core effective tax rate of 19-19.5% for fiscal 2023. It expects capital expenditure to be 5% of net sales in fiscal 2023.
Adjusted free cash flow productivity is estimated to be 90% for fiscal 2023. The company intends to make dividend payments of more than $9 billion, along with share repurchases of $6-$8 billion in fiscal 2023.
Here’s How Better-Ranked Stocks Fared
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Fomento Economico Mexicano (FMX - Free Report) , The Duckhorn Portfolio (NAPA - Free Report) and Brown-Forman (BF.B - Free Report) .
Fomento Economico Mexicano, alias FEMSA, currently sports a Zacks Rank of 1 (Strong Buy). FMX has a trailing four-quarter earnings surprise of 3.9%, on average. It has a long-term earnings growth rate of 8.8%. The company has lost 28.4% in the past year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FEMSA’s current financial-year sales suggests growth of 11.3%, whereas earnings estimates indicate a decline of 3.8% from the prior-year reported number. The consensus mark for FMX’s earnings per share has moved up 3.6% in the past 30 days.
Duckhorn currently has a Zacks Rank #2 (Buy) and an expected long-term earnings growth rate of 12.2%. NAPA has a trailing four-quarter earnings surprise of 94.4%, on average. The company has declined 14.7% in the past year.
The Zacks Consensus Estimate for Duckhorn’s current financial-year sales and earnings per share suggests growth of 10.8% and 6.9%, respectively, from the year-ago reported numbers. The consensus mark for NAPA’s earnings per share has been unchanged in the past 30 days.
Brown-Forman currently carries a Zacks Rank #2. BF.B has a trailing four-quarter earnings surprise of 8.1%, on average. The company has risen 3.8% in the past year.
The Zacks Consensus Estimate for Brown-Forman’s current financial year’s sales and earnings per share suggests growth of 7.2% and 14.4%, respectively, from the year-ago reported numbers. The consensus mark for BF.B’s earnings per share has been unchanged in the past 30 days.