The Procter & Gamble Company (NYSE: $PG) is an American multinational that manufacturers and sells fast-moving consumer goods, specializing in a broad range of personal health/consumer health, personal care, and hygiene products organized into several elements, including beauty, grooming, health care, fabric and home care, family care and more.
The Cincinnati-based company has been a household name for nearly two centuries, serving consumers worldwide with a robust portfolio of trusted, quality brands across multiple categories. It released its fiscal third-quarter 2024 earnings report to a muted market reception on April 19, 2024.
Earnings Highlights
For the three months ending March 31, 2024, P&G reported net sales of $20.2 billion, a 1% increase compared to last year. Organic sales, on an adjusted basis, grew by 3%.
Diluted net earnings per share EPS came in at $1.52, an 11% increase from the prior year, driven by higher net sales and an improved core operating margin.
Strong Gross Margin Performance
Procter & Gamble’s gross margin for the quarter expanded by an impressive 300 basis points year-over-year to 51.2%. On a core basis, which adjusts for certain non-recurring items, the gross margin expanded even further, increasing by 310 basis points to 51.3%. Currency-neutral core gross margin saw a substantial 400-basis-point improvement, reaching 52.2%.
The strong gross margin performance was driven by several factors, including gross productivity savings of 260 basis points, favorable commodity costs contributing 130 basis points, and increased pricing benefits of 130 basis points. These tailwinds were partially offset by unfavorable gross margin product mix of 100 basis points, product reinvestments, and other impacts accounting for 20 basis points.
Segment Performance
Organic sales in the Beauty segment grew 3%, with Hair Care leading the way with high single-digit growth driven by increased pricing in Latin America, Europe, and North America. Skin and Personal Care organic sales declined in the low single digits due to lower sales of the super-premium SK-II brand, partially offset by Personal Care innovation.
The Grooming segment delivered a remarkable 10% organic sales growth, primarily driven by higher pricing in Latin America and Europe. Volume growth was partially offset by unfavorable product mix. On healthcare, organic sales in the Health Care segment increased 2%, with Oral Care up mid-single digits due to the premium product mix, despite volume declines in Asia Pacific and North America. Personal Health Care grew in the low single digits, aided by pricing but tempered by volume declines due to lower incidence of cough and cold.
On Fabric & Home Care, the segment saw a 3% increase in organic sales. Home Care organic sales grew at a high single-digit rate, driven by pricing and innovation-led volume growth.
On Baby, Feminine & Family Care, organic sales in this segment were flat compared to the prior year. Baby Care organic sales decreased in the mid-single digits due to pricing-related volume declines, partially offset by favorable product mix and devaluation-related price increases. Feminine Care grew in the low single digits, aided by pricing and product mix, despite pricing-related volume declines. Family Care organic sales increased in the low single digits, driven by volume growth but partially offset by unfavorable product mix.
Procter & Gamble Raises FY Guidance
Encouraged by the strong third-quarter performance, P&G raised its full-year fiscal 2024 diluted EPS growth guidance from 1% to 2%, up from the previous range of -1% to flat. The company’s core EPS growth guidance was also increased, now projected to be 10% to 11%, up from the prior range of 8% to 9%.
P&G maintained its all-in sales growth guidance for fiscal 2024 at 2% to 4%, with organic sales growth expected to be in the 4% to 5% range. The company also reaffirmed its outlook for adjusted free cash flow productivity of 90%. It plans to return more than $14 billion via dividends and share buybacks during the fiscal year to its shareholders.
Operational Efficiency and Cash Flow
Operating margin for the third quarter improved by 90 basis points year-over-year to 22.1%, or 220 basis points on a currency-neutral core basis. This was driven by gross productivity savings of 320 basis points.
P&G’s adjusted free cash flow for the quarter stood at $3.3 billion, with an adjusted free cash flow productivity of 87%. The company’s strong cash generation capabilities underscore its commitment to returning value to shareholders through its robust capital return program.
Procter & Gamble Stock Performance
On Friday, April 19, Procter & Gamble’s shares were trading at $157.72, up 0.27% as of 02:56 PM EDT. The company’s stock price movement provides investors insight into the market’s reaction to P&G’s quarterly earnings report and its raised full-year earnings outlook. Despite the solid results and positive guidance, the stock has traded sideways all day, potentially reflecting profit-taking or concerns about the company’s ability to sustain its momentum in a challenging economic environment.
However, the relatively modest movement suggests that the overall market sentiment remains positive, underpinned by P&G’s strong brand portfolio, operational efficiency, and cash flow generation.
Should You Buy Procter & Gamble in 2024?
Procter & Gamble’s strong third-quarter performance, supported by strong organic sales growth, impressive gross margin expansion, and solid cash flow generation, positions the company favorably for potential investors in 2024. While the stock has been moving sideways on the earnings today, the company’s raised full-year earnings guidance and commitment to returning substantial value to shareholders through dividends and share repurchases could make P&G an attractive investment opportunity.
However, you should carefully evaluate the company’s ability to navigate challenges such as pricing pressures and macroeconomic barriers before making an informed decision about investing in Procter & Gamble’s shares.
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