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Procter & Gamble (PG) Up 11.5% in Three Months: Here's Why
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Procter & Gamble (PG - Free Report) has been gaining from robust pricing and a favorable mix, along with strength across segments. Improved productivity and cost-saving plans bode well. This led to robust top and bottom-line surprise trends for the third consecutive quarter in third-quarter fiscal 2023.
Earnings of $1.37 per share increased 3% from $1.33 per share in the year-ago quarter. The figure also beat our estimate of earnings of $1.32 per share. Currency-neutral core earnings per share (EPS) rose 13% year over year. The company reported net sales of $20,068 million, up 4% year over year. Sales surpassed our estimate of $18,824.6 million. The increase in sales can be attributed to growth across all segments. Currency impacted net sales by 4%.
The company witnessed continued strong momentum in the fiscal third quarter as reflected by underlying strength in brands and appropriate strategies, which aided organic sales growth. On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 7%, backed by a 10% rise in pricing and a 1% gain from a positive product mix, offset by a 3% decline in volume. All the company’s business segments reported growth in organic sales. The company’s organic sales grew, driven by robust pricing and a favorable mix, along with strength across segments.
Procter & Gamble remains focused on productivity and cost-saving plans to boost margins. The company’s continued investment in the business alongside efforts to offset macro cost headwinds and balance top and bottom-line growth underscores its productivity efforts. PG is witnessing cost savings and efficiency improvements across all facets of the business.
During the third quarter of fiscal 2023, the company’s gross margin was aided by 210 basis points (bps) of gross productivity savings, while the operating margin included productivity savings of 290 bps. SG&A expenses in the quarter reflected productivity savings of 80 bps.
Consequently, the gross margin increased 150 bps to 48.2%. The currency-neutral gross margin improved 220 bps to 48.9%. Also, the operating margin rose 40 bps from the prior year to 21.2%. On a currency-neutral basis, the operating margin expanded 160 bps to 22.4%.
Driven by these factors, management raised its sales view for fiscal 2023. For fiscal 2023, the company now anticipates year-over-year all-in sales growth of 1%, compared with down 1% to flat stated earlier. Organic sales are likely to increase 6% in fiscal 2023 versus the 4-5% growth mentioned earlier. We estimate the company’s all-in sales to grow 1.1% year over year to $80,979.5 million in fiscal 2023, with organic sales estimated to increase 6%.
Image Source: Zacks Investment Research
Shares of this Zacks Rank #2 (Buy) company have gained 11.5% in the past three months, compared with the industry’s 10.1% growth.
However, the company has been reeling under supply-chain issues, higher transportation costs, geopolitical challenges, currency headwinds and rising inflation which have been impacting consumer confidence. The company expects reported EPS to be flat to up 4% from $5.81 reported in fiscal 2022. The company expects EPS at the low end of the range due to the impacts of ongoing commodity and material cost headwinds, and currency impacts.
The current earnings view includes after-tax impacts of $1.3 billion related to unfavorable currency movements and $2.2 billion of impacts of higher commodity and material costs. This equates to a $3.5-billion after-tax impact on net income, implying a $1.40-per-share impact on EPS or a 24-percentage-point headwind on EPS growth.
Also, the unfavorable foreign currency remains concerning. Notably, currency fluctuations hurt sales by 4% and earnings by 16 cents per share in third-quarter fiscal 2023. SG&A expense rate reflected adverse impacts of foreign currency of 0.5% in the fiscal third quarter. Currency movements are expected to negatively impact all-in sales growth by 5% in fiscal 2023.
Conclusion
Despite cost headwinds and currency woes, robust pricing, strength across segments and productivity efforts bode well and will likely help PG stay afloat. Also, a long-term earnings growth rate of 6.1% raises optimism about the stock. Topping it, the earnings estimates for fiscal 2023 have moved up 0.3% in the past 30 days.
Other Stocks to Consider
We have highlighted some other top-ranked stocks from the broader Consumer Staples space, namely Clorox (CLX - Free Report) , Conagra Brands (CAG - Free Report) and Church & Dwight Co. (CHD - Free Report) .
Clorox currently sports a Zacks Rank #1 (Strong Buy). CLX has a trailing four-quarter earnings surprise of 25.5%, on average. It has a long-term earnings growth rate of 12.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Clorox’s current financial-year sales and earnings per share suggests growth of 1.7% and 8.3%, respectively, from the year-ago reported numbers. The consensus mark for CLX’s earnings per share has moved up by 0.7% in the past seven days.
Conagra Brands, operating as a consumer-packaged goods food company, currently carries a Zacks Rank of 2. CAG has a trailing four-quarter earnings surprise of 13.2%, on average. It has a long-term earnings growth rate of 6.4%.
The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests improvements of 7.1% and 16.5%, respectively, from the year-ago reported number. The consensus mark for CAG’s earnings per share has moved up 3.4% in the past 30 days.
Church & Dwight currently has a Zacks Rank of 2 and an expected long-term earnings growth rate of 7.6%. CHD has a trailing four-quarter earnings surprise of 9.8%, on average.
The Zacks Consensus Estimate for Church & Dwight’s current financial-year sales and earnings suggests growth of 5.9% and 4%, respectively, from the year-ago reported numbers. The consensus mark for CHD’s earnings per share has moved up by a penny in the past seven days.
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Procter & Gamble (PG) Up 11.5% in Three Months: Here's Why
Procter & Gamble (PG - Free Report) has been gaining from robust pricing and a favorable mix, along with strength across segments. Improved productivity and cost-saving plans bode well. This led to robust top and bottom-line surprise trends for the third consecutive quarter in third-quarter fiscal 2023.
Earnings of $1.37 per share increased 3% from $1.33 per share in the year-ago quarter. The figure also beat our estimate of earnings of $1.32 per share. Currency-neutral core earnings per share (EPS) rose 13% year over year. The company reported net sales of $20,068 million, up 4% year over year. Sales surpassed our estimate of $18,824.6 million. The increase in sales can be attributed to growth across all segments. Currency impacted net sales by 4%.
The company witnessed continued strong momentum in the fiscal third quarter as reflected by underlying strength in brands and appropriate strategies, which aided organic sales growth. On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 7%, backed by a 10% rise in pricing and a 1% gain from a positive product mix, offset by a 3% decline in volume. All the company’s business segments reported growth in organic sales. The company’s organic sales grew, driven by robust pricing and a favorable mix, along with strength across segments.
Procter & Gamble remains focused on productivity and cost-saving plans to boost margins. The company’s continued investment in the business alongside efforts to offset macro cost headwinds and balance top and bottom-line growth underscores its productivity efforts. PG is witnessing cost savings and efficiency improvements across all facets of the business.
During the third quarter of fiscal 2023, the company’s gross margin was aided by 210 basis points (bps) of gross productivity savings, while the operating margin included productivity savings of 290 bps. SG&A expenses in the quarter reflected productivity savings of 80 bps.
Consequently, the gross margin increased 150 bps to 48.2%. The currency-neutral gross margin improved 220 bps to 48.9%. Also, the operating margin rose 40 bps from the prior year to 21.2%. On a currency-neutral basis, the operating margin expanded 160 bps to 22.4%.
Driven by these factors, management raised its sales view for fiscal 2023. For fiscal 2023, the company now anticipates year-over-year all-in sales growth of 1%, compared with down 1% to flat stated earlier. Organic sales are likely to increase 6% in fiscal 2023 versus the 4-5% growth mentioned earlier. We estimate the company’s all-in sales to grow 1.1% year over year to $80,979.5 million in fiscal 2023, with organic sales estimated to increase 6%.
Image Source: Zacks Investment Research
Shares of this Zacks Rank #2 (Buy) company have gained 11.5% in the past three months, compared with the industry’s 10.1% growth.
However, the company has been reeling under supply-chain issues, higher transportation costs, geopolitical challenges, currency headwinds and rising inflation which have been impacting consumer confidence. The company expects reported EPS to be flat to up 4% from $5.81 reported in fiscal 2022. The company expects EPS at the low end of the range due to the impacts of ongoing commodity and material cost headwinds, and currency impacts.
The current earnings view includes after-tax impacts of $1.3 billion related to unfavorable currency movements and $2.2 billion of impacts of higher commodity and material costs. This equates to a $3.5-billion after-tax impact on net income, implying a $1.40-per-share impact on EPS or a 24-percentage-point headwind on EPS growth.
Also, the unfavorable foreign currency remains concerning. Notably, currency fluctuations hurt sales by 4% and earnings by 16 cents per share in third-quarter fiscal 2023. SG&A expense rate reflected adverse impacts of foreign currency of 0.5% in the fiscal third quarter. Currency movements are expected to negatively impact all-in sales growth by 5% in fiscal 2023.
Conclusion
Despite cost headwinds and currency woes, robust pricing, strength across segments and productivity efforts bode well and will likely help PG stay afloat. Also, a long-term earnings growth rate of 6.1% raises optimism about the stock. Topping it, the earnings estimates for fiscal 2023 have moved up 0.3% in the past 30 days.
Other Stocks to Consider
We have highlighted some other top-ranked stocks from the broader Consumer Staples space, namely Clorox (CLX - Free Report) , Conagra Brands (CAG - Free Report) and Church & Dwight Co. (CHD - Free Report) .
Clorox currently sports a Zacks Rank #1 (Strong Buy). CLX has a trailing four-quarter earnings surprise of 25.5%, on average. It has a long-term earnings growth rate of 12.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Clorox’s current financial-year sales and earnings per share suggests growth of 1.7% and 8.3%, respectively, from the year-ago reported numbers. The consensus mark for CLX’s earnings per share has moved up by 0.7% in the past seven days.
Conagra Brands, operating as a consumer-packaged goods food company, currently carries a Zacks Rank of 2. CAG has a trailing four-quarter earnings surprise of 13.2%, on average. It has a long-term earnings growth rate of 6.4%.
The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests improvements of 7.1% and 16.5%, respectively, from the year-ago reported number. The consensus mark for CAG’s earnings per share has moved up 3.4% in the past 30 days.
Church & Dwight currently has a Zacks Rank of 2 and an expected long-term earnings growth rate of 7.6%. CHD has a trailing four-quarter earnings surprise of 9.8%, on average.
The Zacks Consensus Estimate for Church & Dwight’s current financial-year sales and earnings suggests growth of 5.9% and 4%, respectively, from the year-ago reported numbers. The consensus mark for CHD’s earnings per share has moved up by a penny in the past seven days.