What's Behind Procter & Gamble's Splendid Performance?
- By Mayank Marwah
Procter & Gamble Co. (NYSE:PG) released its first-quarter 2021 earnings before the market opened on Oct. 21.
The consumer goods manufacturer edged past earnings and revenue expectations as consumers bought large quantities of household items such as toilet paper, diapers and paper towels as a result of the coronavirus pandemic.
The key numbers
The consumer products giant recorded adjusted earnings of $1.63 per share, which reflected growth of 18.98% from the same period last year. Revenue of $19.3 billion rose 9% on a year-over-year basis. Analysts had predicted earnings of $1.42 per share on $18.38 billion in revenue.
Organic sales, barring the impact of foreign exchange, acquisitions and divestitures, spiked 9% courtesy of strong growth in the health care and beauty segments.
In a statement, CEO David Taylor said:
"We delivered another strong quarter of organic sales growth, core earnings per share and cash returned to shareowners, enabling us to increase our outlook for fiscal year results. Our near-term priorities continue to be employee health and safety, maximizing availability of P&G products for consumers around the world, and helping society meet the challenges of the COVID crisis. We remain firmly focused on executing our strategies of superiority, productivity, constructive disruption and improving P&G's organization and culture to deliver balanced top-line and bottom-line growth along with strong cash generation."
Performance of business divisions
The beauty segment experienced 7% organic sales growth, driven by strong demand for its skin and personal care products as well as higher prices. Robust demand for its newly launched Safeguard hand soap and hand sanitizer and other new products by Olay pushed North American sales for skin and personal care higher during the quarter.
The grooming business experienced a drop of 6% in organic sales. While organic sales of its appliances rose 30% compared to the prior-year quarter, shave care organic sales remained flat as compared to the prior three-month period.
The health care segment recorded organic sales growth of 12% year over year, owing to product innovation and increased pricing, which improved results particularly in oral care and personal health care.
The company's baby care division witnessed organic sales growth of 4% as demand increased in China, which is one of P&G's largest markets.
Increased marketing spending
The household products manufacturer is investing more money in marketing and advertising as customers spend more time at home. During the quarter, the company saved approximately $200 million due to lower overhead, media, agency and manufacturing expenses. A huge part of these savings were spent on marketing. Customers have continued to buy pricier products and did not switch to inexpensive products even though the effect of government stimulus is diminishing and unemployment benefits are running out.
Guidance
For fiscal 2021, Procter & Gamble is projecting core earnings per share growth of 5% to 8% (or $5.38 to $5.53 a share), which is up from its prior guidance of 3% to 7%. The outlook includes headwinds from foreign currency to the extent of $325 million (post-tax) and $50 million in higher freight costs. It also forecasts that sales will rise by 3% to 4%, which is more than its prior estimate of 1% to 3%.
The company said it will repurchase $7 billion to $9 billion worth of stock in fiscal 2021.That is up from its prior guidance of $6 billion to $8 billion.
Disclosure: I do not hold any positions in the stocks mentioned.
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This article first appeared on GuruFocus.
