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P&G Shares Slump on Inflation Warning: ETFs in Focus

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  • PG

One of the most famous names in the consumer products world – Procter & Gamble PG – has posted better-than-expected first-quarter fiscal 2022 results. However, the staples giant warns of more inflationary pressure ahead. Price hikes so far helped make up for higher freight costs but will probably won’t be able to keep up with soaring commodity costs. Shares slumped about 1.2% in the key trading session. Management reiterated its outlook for fiscal 2022.

Earnings in Focus

Procter & Gamble’s earnings of $1.61 per share declined 1% from core earnings of $1.63 per share in the year-ago quarter. The decline can be attributed to the reduced operating margin due to higher-than-anticipated commodity and freight costs, which more than offset net sales growth. However, earnings outpaced the Zacks Consensus Estimate of $1.59. Currency-neutral net EPS declined 3%.

The company reported net sales of $20.34 billion, increasing 5% year over year and surpassing the Zacks Consensus Estimate of $19.85 billion. Sales growth was attributed to strength across all segments coupled with robust volume, pricing and mix. Favorable foreign currency aided sales by one percentage point.

On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 4%, backed by a 2% increase in the shipment volume and a 1% rise in pricing and a positive mix of 1%. Net sales for the Beauty, Grooming and Fabric & Home Care segments increased 5% each. The Health Care, and Baby, Feminine & Family Care segments reported sales growth of 8% and 3%, respectively. All of the company’s business segments reported growth in organic sales.

Fiscal 2021 Guidance

Management reiterated its guidance for fiscal 2022. The company anticipates all-in and organic sales growth of 2-4% each. Currency movements are now expected to be neutral to all-in sales growth in fiscal 2022.

EPS, on a reported basis, is expected to increase 6-9%, whereas the company reported $5.50 in fiscal 2021. Core EPS for fiscal 2022 is anticipated to grow 3-6% from $5.66 earned in fiscal 2021. The earnings view takes into account an after-tax headwind of $2.1 billion from higher commodity costs and $200 million from higher freight costs. Commodity and freight costs are likely to hurt fiscal 2022 EPS by 90 cents per share on a combined basis. Currency is expected to be neutral to EPS in fiscal 2022.

Consumer ETF Impact

Thanks to a little downbeat outlook, shares of P&G declined in the key trading session and after hours too. The loss and the outlook of the company should be reflected in the ETF world, with consumer staples funds being in the focus. Many of the key funds in this segment have a double-digit allocation to the consumer product giant, suggesting that the performance of the fund is highly dependent on P&G’s performance.

Let’s take a look at the following three ETFs with a solid allocation to Procter & Gamble.

Consumer Staples Select Sector SPDR Fund XLP

The most popular consumer ETF on the market, XLP, follows the S&P Consumer Staples Select Sector Index. The fund invests about $11.56 billion of assets in 32 holdings. Of these firms, the in-focus P&G takes the first spot, making up roughly 16% of the assets. The fund has returned about 0.04% on Oct 19 (see all consumer staples ETFs here).

Vanguard Consumer Staples ETF VDC

This fund manages a $5.87 billion asset base and provides exposure to a basket of 97 consumer stocks. The product charges a low fee of 10 bps per year from investors. Here too, P&G is the top firm with 13.38% allocation. VDC, however, advanced about 0.1% on Oct 19.

iShares U.S. Consumer Goods ETF IYK

This ETF tracks the Dow Jones U.S. Consumer Goods Index, giving investors exposure to the broad consumer staples space. The fund holds about 106 stocks in its basket with AUM of $693.2 million. Like the other two, the stock under consideration occupies the top position in the basket with 16.69% of assets. The fund gained 0.14% on Oct 19.


 


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Procter & Gamble Company The (PG) : Free Stock Analysis Report
 
Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports
 
Vanguard Consumer Staples ETF (VDC): ETF Research Reports
 
iShares U.S. Consumer Staples ETF (IYK): ETF Research Reports
 
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