Procter & Gamble earnings boosted by higher pricing, sending stock up 5%



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Procter & Gamble Co.’s stock rose 5% Tuesday after the consumer-goods giant beat profit estimates for its fiscal second quarter, as higher prices boosted margins.

The Cincinnati-based parent to Charmin and Bounty toilet paper, Febreze and Downy detergent, Gillette shaving products and Pantene shampoo
PG,
+4.23%
posted net income of $3.468 billon, or $1.40 a share, for the quarter to Dec. 31, down from $3.933 billion, or $1.59 a share, in the year-earlier period.

Adjusted per-share earnings came to $1.84, well ahead of the $1.70 FactSet consensus.

Sales rose 3% to $21.441 billion from $20.733 billion year ago, just below the FactSet consensus of $21.476 billion.

By segment, sales rose 6% at the company’s grooming business as prices rose by an average of 7% and volume rose 1%. The company raised prices in previous quarters. Sales at the beauty business rose 1% after prices rose by an average of 4%, while volumes were flat.

Sales at the healthcare division were up 4%, after an average price increase of 5%, as volumes fell 3%. Sales at the fabric- and home-care division rose 5% after prices rose an average of 4%. Volumes were flat.

Sales at the baby-, feminine- and family-care segment rose 2% after a 4% hike in prices, while volumes fell 2%.

Gross margin rose 520 basis points for the quarter, driven by benefits from productivity savings, favorable commodity costs and increased pricing.

 Inflation, as measured by the annual headline rate of the consumer-price index, has come down from peaks seen last year, although it has remained stuck at or above 3% for seven straight months.

Truist analysts reiterated their hold rating on the stock.

“Of note, organic volume growth was down (1%), roughly in line with trends over the past two quarters (both -1% as well),” wrote analysts led by Bill Chappell. “The top line continues to be propelled by pricing which should moderate over the coming quarters.”

Truist is sticking with its stock-price target of $155, which is just below the current price.

By geography, strength in North America and Europe focus markets was offset by weakness in greater China, Eastern Europe and Middle East/Africa, due to local issues in select markets, Chief Financial Officer Andre Schulten told analysts on the earnings call, according to a FactSet transcript.

“Growth across categories continues to be broad-based, with eight of 10 product categories holding or growing organic sales this quarter,” he said. Organic sales are adjusted for foreign exchange and acquisitions or sales.

The two weaker categories were personal healthcare, which was hurt by a late-developing cold and flu season, while skincare and personal care were down in the mid-single digits due to the performance of skincare line SK-II in China.

“The SK-II brand in greater China was down 34% due to soft market conditions and a temporary headwind for Japanese brands in the market,” Schulten said. “Our consumer research indicates SK-II brand sentiment is improving, and we expect to see sequential improvement in the back half.”

The anti-Japanese brand sentiment is being driven by concerns about the release of wastewater from the Fukushima nuclear plant, he clarified in later comments.

Chief Executive Jon Moeller offered an update on the company’s plans for artificial intelligence, the technology du jour. P&G is working to use AI in its supply chain to improve efficiency, he told analysts.

One example is the use of data and machine-learning algorithms to optimize truck scheduling in order to minimize idle time for drivers.

“We’re also using AI tools to optimize fill rates and for dynamic routing and sourcing optimization,” he said.

P&G tweaked its fiscal 2024 profit guidance but stuck with its sales outlook. It now expects earnings per share to be down 1% to flat, compared with prior guidance of up 6% to 9%, but expects adjusted EPS to rise 8% to 9%, narrowing the range from prior guidance of up 6% to 9%.

Sales are still expected to rise 2% to 4% from fiscal 2023.

P&G expects to book restructuring charges of $1 billion to$1.5 billion related to a market portfolio restructuring of operations, mostly in enterprise markets, including Argentina and Nigeria. Most of the charges will be noncash and recognized in the fiscal years ending June 30 of 2024 and 2025.

In the second quarter, the company booked a $1.3 billion pretax noncash impairment charge related to intangible assets acquired as part of the 2005 acquisition of Gillette Co.

For more, read: Procter & Gamble sees more than $2 billion in charges for restructuring and Gillette impairment

The company is still expecting to pay more than $9 billion in dividends in fiscal 2024 and to repurchase $5 billion to $6 billion of stock.

The stock has gained 5% in the year to date, while the S&P 500
SPX
has gained 20.7%.



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