Procter & Gamble (PG): Three points to note about its most recent quarter

Shares of Procter & Gamble Co. (NYSE: PG) were up 1.3% on Thursday, a day after the company reported better-than-expected results for the second quarter of 2022. The stock has gained 24% over the past 12 months. The general sentiment around the stock is bullish following an encouraging quarterly performance. Here are three positive points from the earnings report:

Sales growth  

Net sales rose 6% in Q2, both on a reported and organic basis, to $21 billion compared to the year-ago quarter, beating analysts’ estimates. The company recorded sales growth across all its segments, both on a reported and organic basis. Organic sales growth was the highest at 8% in both the Health Care and Fabric & Home Care segments.

Organic sales in Personal Health Care rose 20% as a harsh flu season drove growth in respiratory products. Sales in Fabric Care and Feminine Care were up double-digits while Grooming was up mid-single digits.

Sales grew 6% in focus markets and 7% in enterprise markets. In focus markets, US organic sales were up 9% while Europe focus markets were up 5%. In enterprise markets, Latin America was up 15%.

Inflation

In Q2, core gross margin dropped 400 basis points, hurt mainly by higher commodity and freight costs. Negative product mix and product/package reinvestments also contributed to the decline. On its quarterly conference call, P&G said that transportation and labor markets remain tight and availability of materials remain stretched.

Inflationary pressures remain broad-based in certain markets and categories and these are not expected to go away soon. The company currently expects a $2.3 billion after-tax commodity cost headwind in FY2022. P&G also expects freight and transportation costs to be an incremental $300 million after-tax headwind for the year.

The company plans to partially offset these cost pressures through price increases and productivity savings. It has announced price increases in each of its 10 product categories in the US. Price increases across most of these categories are now effective in the market. As pricing goes into effect, earnings growth is expected to be sequentially stronger in the third and fourth quarter of FY2022.

Upbeat outlook

Procter & Gamble raised its outlook for all-in sales growth in FY2022 to a range of 3-4% from the previous range of 2-4%. It also raised organic sales growth guidance to a range of 4-5% from 2-4%. The company expects pricing to contribute more to sales growth in the latter half of the year as more of the price increases take effect in the market.

GAAP EPS is expected to grow 6-9% year-over-year in FY2022 while core EPS is estimated to grow 3-6%. The company increased its outlook for adjusted free cash flow productivity to 95% along with its guidance for shareholder returns. P&G plans to return $17-18 billion to shareholders through $8 billion in dividends and $9-10 billion in share repurchases.

Click here to read the full transcript of Procter & Gamble’s Q2 2022 earnings conference call