Will Procter & Gamble (PG) Retain Its Upside Story in 2022?
The Procter & Gamble Company PG has been gaining from a spike in demand for cleaning products due to the resurgence of COVID-19 cases as well as improved productivity. Strength across brands also bodes well. This led to better-than-expected second-quarter fiscal 2022 results, wherein the top and bottom lines not only surpassed the Zacks Consensus Estimate but also grew year over year.
The company retained its robust earnings surprise for more than three years, while its revenues topped estimates for the seventh straight time in the fiscal second quarter. Net sales advanced 6% year over year, owing to strength across all segments, coupled with robust volume and pricing gains. On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues improved 6%, backed by a 3% increase in the shipment volume and a 3% rise in pricing. All of the company’s business segments reported growth in organic sales.
Procter & Gamble remains focused on productivity and cost-saving plans to boost margins. The company has been witnessing cost savings and efficiency improvements via continued investment in businesses alongside efforts to offset cost headwinds. As a result, it expects $800 million in COGS savings this year. Its core currency-neutral gross and operating margins reflected 80-bps gains from productivity savings and 130 bps from pricing benefits in second-quarter fiscal 2022.
Driven by these factors, management raised its fiscal 2022 guidance. The company anticipates all-in sales growth of 3-4%, up from the previously mentioned 2-4%. Organic sales are likely to increase 4-5%, up from the earlier stated 2-4%. 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.
Consequently, shares of this Zacks Rank #3 (Hold) company have gained 28.1% in the past year compared with the industry’s growth of 16.3%.
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However, higher commodity and freight costs remain a headwind. This led to dismal margins in the fiscal second quarter. The gross margin contracted 400 basis points (bps) to 49.1%, while the operating margin declined 250 bps from the prior year to 24.7%. On a currency-neutral basis, the gross margin declined 410 bps, while the operating margin contracted 240 bps year over year.
The company notes that input costs have continued to rise. It anticipates after-tax commodity cost headwinds of $2.3 billion for fiscal 2022. It also estimates an additional after-tax headwind of $300 million from freight and transportation costs in fiscal 2022. This is included in the company’s earnings per share view for fiscal 2022. On a combined basis, the company expects higher commodity and freight costs to hurt fiscal 2022 EPS by $1.10 per share.
Conclusion
Despite cost headwinds, we believe that solid demand, brand strength and productivity efforts are likely to help PG sustain its momentum in 2022. The Zacks Consensus Estimate for the company’s current financial year’s sales and earnings suggests growth of 4.5% and 4.4%, respectively, from the year-ago period’s reported numbers. The positive trend signifies bullish analyst sentiments. Topping it, the stock has a long-term earnings growth rate of 6.8%.
How Other Stocks Fared
Some better-ranked stocks in the Consumer Staples sector are Inter Parfums IPAR, Albertsons Companies ACI and Medifast MED.
Inter Parfums currently sports a Zacks Rank #1(Strong Buy). IPAR has a trailing four-quarter earnings surprise of 29.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and EPS suggests growth of 63.2% and 117.4%, respectively, from the year-ago period’s reported figures.
Albertsons Companies currently flaunts a Zacks Rank #1. ACI has a trailing four-quarter earnings surprise of 31.8%, on average.
The Zacks Consensus Estimate for Albertsons Companies’ current financial-year sales suggests growth of 1.6% and the same for EPS indicates a decline of 9% from the year-ago period’s reported figures.
Medifast, one of the leading health and wellness companies, currently has a Zacks Rank #2 (Buy). MED has a trailing four-quarter earnings surprise of 17.3%, on average.
The Zacks Consensus Estimate for Medifast’s current financial-year sales and earnings suggests growth of 63% and 49.3%, respectively, from the year-ago period’s reported figures.
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Procter & Gamble Company The (PG) : Free Stock Analysis Report
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