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The Procter & Gamble Company (PG - Free Report) has reported better-than-expected top and bottom lines in second-quarter fiscal 2023. However, sales and earnings declined year over year. The company’s organic sales improved, driven by robust pricing and a favorable mix, along with strength across segments. Improved productivity amid cost headwinds has also aided the beat. However, currency headwinds, and elevated commodity and input costs continued to hurt margins.
Shares of the company declined 2.1% in the pre-market session, following the year-over-year decline in the top and bottom lines, and expectations of continued impacts of elevated costs.
Procter & Gamble’s earnings of $1.59 per share declined 4% from $1.66 in the year-ago quarter. This can be attributable to the lower sales and operating margin, partly offset by a reduced tax rate and outstanding shares. However, the figure beat the Zacks Consensus Estimate of $1.58 and our estimate of $1.57. Currency-neutral net earnings per share (EPS) rose 5% year over year.
Procter & Gamble Company The Price, Consensus and EPS Surprise
The company has reported net sales of $20,773 million, down 1% year over year. However, sales surpassed the Zacks Consensus Estimate of $20,647 million and our estimate of $20,065.3 million. The decline in sales was attributed to soft performances across most segments, except for Health Care, and Fabric & Home Care. Currency impacted net sales by 6%.
On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 5%, backed by a 10% rise in pricing and a 1% gain from a positive product mix, offset by a 6% decline in volume.
Net sales for the Health Care segment increased 2%, while sales for Fabric & Home Care were up 1%. Meanwhile, sales for the Baby, Feminine & Family Care segment slid 1%, the Beauty segment declined 3%, and the Grooming segment was down 9% year over year. All of the company’s business segments have reported growth in organic sales, except for Grooming. Organic sales rose 3% for Beauty, 8% each for Fabric & Home Care and Health Care segments, and 4% for the Baby, Feminine & Family Care segment. The Grooming segment reported flat sales on an organic basis.
Shares of the Zacks Rank #3 (Hold) company have gained 15.3% in the past three months compared with the industry’s 17.2% rally.
Image Source: Zacks Investment Research
Margins
In the reported quarter, the gross margin contracted 160 basis points (bps) to 47.5%. Favorable currency rates aided the gross margin by 0.6%. The currency-neutral gross margin declined 100 bps to 48.1%. The decline in the gross margin was mainly due to a 380-bps commodity and input material cost inflation, a 140-bps impact of capacity start-up costs and other impacts, and a 130-bps negative product mix. This was partly negated by 470 bps of pricing gains and 80 bps of gross productivity savings.
Selling, general and administrative expenses (SG&A), as a percentage of sales, expanded 10 bps from the year-ago quarter to 24.5%. Currency hurt the SG&A expense rate by 0.4%. SG&A expenses declined 30 bps to 24.1% on a currency-neutral basis, owing to 130 bps of inflation, capability investments and other impacts, offset by 130 bps of leverage benefits due to higher organic sales and 30 bps of productivity savings.
The operating margin declined 170 bps from the prior year to 23%. Currency rates aided the operating margin by 1%. On a currency-neutral basis, the operating margin contracted 70 bps to 24%. The operating margin included gross productivity savings of 110 bps.
Financials
Procter & Gamble ended second-quarter fiscal 2023 with cash and cash equivalents of $6,854 million, long-term debt of $20,582 million, and total shareholders’ equity of $44,725 million.
The company generated an operating cash flow of $3,574 million in second-quarter fiscal 2023 and an adjusted free cash flow of $2,866 million. Adjusted free cash flow productivity was 72% in the fiscal second quarter.
It returned $4.2 billion of value to its shareholders in the fiscal second quarter. This included $2.2 billion of dividend payouts and $2 billion of share buybacks.
Fiscal 2023 Guidance
Driven by the company’s progress against its plans, management has raised its sales view for fiscal 2023, while it retained its earnings outlook. For fiscal 2023, the company anticipates all-in sales between down 1% and flat year over year compared with down 3-1% stated earlier. Organic sales are likely to increase 4-5% in fiscal 2023 versus 3-5% growth mentioned earlier. Currency movements are expected to negatively impact all-in sales growth by 5% versus the 6% impact mentioned earlier.
The company has retained its view for fiscal 2023 EPS. It expects reported EPS to be flat to up 4% from $5.81 reported in fiscal 2022. However, the company expects EPS at the low end of the prior mentioned range due to the impacts of ongoing commodity and material cost headwinds, and currency impacts.
The current earnings view takes into account after-tax impacts of $1.2 billion related to unfavorable currency movements, $2.3 billion of impacts of higher commodity and material costs, and $200 million from higher freight costs. This equates to a $3.7-billion after-tax impact on net income, implying a $1.50-per-share impact on EPS or a 26-percentage-point headwind on EPS growth. The revised $3.7-billion headwind marks a modest sequential improvement from the company’s prior view of $3.9 billion.
Procter & Gamble projects a core effective tax rate of 20% 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 $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 Inter Parfums (IPAR - Free Report) , e.l.f. Beauty (ELF - Free Report) and Anheuser-Busch InBev (BUD - Free Report) .
Inter Parfums currently sports a Zacks Rank #1 (Strong Buy) and has an expected long-term earnings growth rate of 15%. IPAR has a trailing four-quarter earnings surprise of 27.8%, on average. The company has risen 47.1% in the past three months.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and EPS suggests growth of 22.8% and 29.1%, respectively, from the year-ago reported numbers. The consensus mark for IPAR’s EPS has moved up 4.4% in the past 30 days.
e.l.f. Beauty currently flaunts a Zacks Rank of 1. ELF has a trailing four-quarter earnings surprise of 92.8%, on average. The company has rallied 33.8% in the past three months.
The Zacks Consensus Estimate for ELF’s current financial-year sales and earnings suggests growth of 24.8% and 33.3%, respectively, from the prior-year reported numbers. The consensus mark for ELF’s EPS has been unchanged in the past 30 days.
Anheuser-Busch InBev, alias AB InBev, currently carries a Zacks Rank #2 (Buy). BUD has a trailing four-quarter earnings surprise of 8.8%, on average. It has a long-term earnings growth rate of 9.7%. The company has rallied 31.1% in the past three months.
The Zacks Consensus Estimate for AB InBev’s current financial-year sales and EPS suggests growth of 7.2% and 1.8%, respectively, from the year-ago reported numbers. The consensus mark for BUD’s EPS has moved down 4.9% in the past seven days.
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Procter & Gamble (PG) Beats Q2 Earnings & Sales Estimates
The Procter & Gamble Company (PG - Free Report) has reported better-than-expected top and bottom lines in second-quarter fiscal 2023. However, sales and earnings declined year over year. The company’s organic sales improved, driven by robust pricing and a favorable mix, along with strength across segments. Improved productivity amid cost headwinds has also aided the beat. However, currency headwinds, and elevated commodity and input costs continued to hurt margins.
Shares of the company declined 2.1% in the pre-market session, following the year-over-year decline in the top and bottom lines, and expectations of continued impacts of elevated costs.
Procter & Gamble’s earnings of $1.59 per share declined 4% from $1.66 in the year-ago quarter. This can be attributable to the lower sales and operating margin, partly offset by a reduced tax rate and outstanding shares. However, the figure beat the Zacks Consensus Estimate of $1.58 and our estimate of $1.57. Currency-neutral net earnings per share (EPS) rose 5% year over year.
Procter & Gamble Company The Price, Consensus and EPS Surprise
Procter & Gamble Company The price-consensus-eps-surprise-chart | Procter & Gamble Company The Quote
The company has reported net sales of $20,773 million, down 1% year over year. However, sales surpassed the Zacks Consensus Estimate of $20,647 million and our estimate of $20,065.3 million. The decline in sales was attributed to soft performances across most segments, except for Health Care, and Fabric & Home Care. Currency impacted net sales by 6%.
On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 5%, backed by a 10% rise in pricing and a 1% gain from a positive product mix, offset by a 6% decline in volume.
Net sales for the Health Care segment increased 2%, while sales for Fabric & Home Care were up 1%. Meanwhile, sales for the Baby, Feminine & Family Care segment slid 1%, the Beauty segment declined 3%, and the Grooming segment was down 9% year over year. All of the company’s business segments have reported growth in organic sales, except for Grooming. Organic sales rose 3% for Beauty, 8% each for Fabric & Home Care and Health Care segments, and 4% for the Baby, Feminine & Family Care segment. The Grooming segment reported flat sales on an organic basis.
Shares of the Zacks Rank #3 (Hold) company have gained 15.3% in the past three months compared with the industry’s 17.2% rally.
Image Source: Zacks Investment Research
Margins
In the reported quarter, the gross margin contracted 160 basis points (bps) to 47.5%. Favorable currency rates aided the gross margin by 0.6%. The currency-neutral gross margin declined 100 bps to 48.1%. The decline in the gross margin was mainly due to a 380-bps commodity and input material cost inflation, a 140-bps impact of capacity start-up costs and other impacts, and a 130-bps negative product mix. This was partly negated by 470 bps of pricing gains and 80 bps of gross productivity savings.
Selling, general and administrative expenses (SG&A), as a percentage of sales, expanded 10 bps from the year-ago quarter to 24.5%. Currency hurt the SG&A expense rate by 0.4%. SG&A expenses declined 30 bps to 24.1% on a currency-neutral basis, owing to 130 bps of inflation, capability investments and other impacts, offset by 130 bps of leverage benefits due to higher organic sales and 30 bps of productivity savings.
The operating margin declined 170 bps from the prior year to 23%. Currency rates aided the operating margin by 1%. On a currency-neutral basis, the operating margin contracted 70 bps to 24%. The operating margin included gross productivity savings of 110 bps.
Financials
Procter & Gamble ended second-quarter fiscal 2023 with cash and cash equivalents of $6,854 million, long-term debt of $20,582 million, and total shareholders’ equity of $44,725 million.
The company generated an operating cash flow of $3,574 million in second-quarter fiscal 2023 and an adjusted free cash flow of $2,866 million. Adjusted free cash flow productivity was 72% in the fiscal second quarter.
It returned $4.2 billion of value to its shareholders in the fiscal second quarter. This included $2.2 billion of dividend payouts and $2 billion of share buybacks.
Fiscal 2023 Guidance
Driven by the company’s progress against its plans, management has raised its sales view for fiscal 2023, while it retained its earnings outlook. For fiscal 2023, the company anticipates all-in sales between down 1% and flat year over year compared with down 3-1% stated earlier. Organic sales are likely to increase 4-5% in fiscal 2023 versus 3-5% growth mentioned earlier. Currency movements are expected to negatively impact all-in sales growth by 5% versus the 6% impact mentioned earlier.
The company has retained its view for fiscal 2023 EPS. It expects reported EPS to be flat to up 4% from $5.81 reported in fiscal 2022. However, the company expects EPS at the low end of the prior mentioned range due to the impacts of ongoing commodity and material cost headwinds, and currency impacts.
The current earnings view takes into account after-tax impacts of $1.2 billion related to unfavorable currency movements, $2.3 billion of impacts of higher commodity and material costs, and $200 million from higher freight costs. This equates to a $3.7-billion after-tax impact on net income, implying a $1.50-per-share impact on EPS or a 26-percentage-point headwind on EPS growth. The revised $3.7-billion headwind marks a modest sequential improvement from the company’s prior view of $3.9 billion.
Procter & Gamble projects a core effective tax rate of 20% 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 $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 Inter Parfums (IPAR - Free Report) , e.l.f. Beauty (ELF - Free Report) and Anheuser-Busch InBev (BUD - Free Report) .
Inter Parfums currently sports a Zacks Rank #1 (Strong Buy) and has an expected long-term earnings growth rate of 15%. IPAR has a trailing four-quarter earnings surprise of 27.8%, on average. The company has risen 47.1% in the past three months.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and EPS suggests growth of 22.8% and 29.1%, respectively, from the year-ago reported numbers. The consensus mark for IPAR’s EPS has moved up 4.4% in the past 30 days.
e.l.f. Beauty currently flaunts a Zacks Rank of 1. ELF has a trailing four-quarter earnings surprise of 92.8%, on average. The company has rallied 33.8% in the past three months.
The Zacks Consensus Estimate for ELF’s current financial-year sales and earnings suggests growth of 24.8% and 33.3%, respectively, from the prior-year reported numbers. The consensus mark for ELF’s EPS has been unchanged in the past 30 days.
Anheuser-Busch InBev, alias AB InBev, currently carries a Zacks Rank #2 (Buy). BUD has a trailing four-quarter earnings surprise of 8.8%, on average. It has a long-term earnings growth rate of 9.7%. The company has rallied 31.1% in the past three months.
The Zacks Consensus Estimate for AB InBev’s current financial-year sales and EPS suggests growth of 7.2% and 1.8%, respectively, from the year-ago reported numbers. The consensus mark for BUD’s EPS has moved down 4.9% in the past seven days.