What to look for when Procter & Gamble (PG) reports earnings next week

The Procter & Gamble Company (NYSE: PG) has been a dominant player in the consumer goods market, with a legacy that is not easy to match. In a testament to the efficiency of the company’s business model, its stock outperformed the S&P 500 index for most of 2022 which was a challenging year for the broad market.

Though the stock suffered a big loss in October last year, ahead of the last earnings, it bounced back and is probably on its way to returning to last year’s record high. PG’s performance in the final weeks of last year and early 2023 was marked by high volatility. But the stock has remained unaffected by the recent selloff to a large extent.

Valuation

The high valuation, in relation to earnings, is a dampener, especially at a time when consumer sentiment is under pressure due to high inflation and macro uncertainties. The second-quarter report of the Cincinnati-based beauty & personal care company is expected to play an important role in shaping investment decisions this year. So, it makes sense to assess the outcome before buying/selling the stock.

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 The Procter & Gamble Company Q1 2023 Earnings Call Transcript

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Weakening sales amid people’s changing shopping behavior is a concern for the company, for which 2022 was a relatively good year, however. Meanwhile, returning capital to shareholders is a priority for the management, a strategy that is good for long-term shareholders.

The slowdown seen in the early months of the fiscal year is estimated to have continued in the second quarter. The consensus estimate is for a 4% decrease in earnings to $1.59 per share, reflecting a 1.4% drop in sales to $20.67 billion. The company will be publishing the data on January 19.

In the three months that ended September 2022, core profit, which excludes non-recurring items, declined 2% annually to $1.57 per share but topped expectations, as it did in every quarter in the recent past. Net sales edged up to around $20 billion.

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Commenting on the management’s outlook for the fiscal year, the company’s CFO Andre Schulten said during the earnings call, “We fully expect more volatility in costs, currencies and consumer dynamics, as we move through the fiscal year. However, we think the strategies we’ve chosen, the investments we’ve made and the focus on executional excellence has positioned us well to manage through this volatility over time.”

After recent gains, Procter and Gamble’s shares are currently trading above their long-term average. The stock, which has gained 16% since the last earnings announcement, stayed slightly above $150 on Friday.