The Procter & Gamble Company (NYSE:PG) delivered robust results in the second quarter of fiscal 2024, exceeding the Consensus Estimate for earnings. Year-over-year improvements were observed in both sales and earnings, driven by strong performance across various segments and robust pricing strategies.

Procter & Gamble reported core earnings of $1.84 per share, marking a 16% increase from the same quarter in the previous year when it was $1.59. This figure surpassed the Consensus Estimate of $1.70. The impressive bottom-line results were fueled by enhanced sales, a higher operating margin, and a reduction in outstanding shares. The currency-neutral net earnings per share (EPS) also showed an 18% year-over-year increase.

Net sales for the quarter reached $21,441 million, reflecting a 3% increase from the previous year. Although sales fell slightly short of the Consensus Estimate of $21,545 million, growth was evident across all segments. Currency fluctuations had a negative impact of 1% on net sales.

Organic sales, excluding the effects of acquisitions, divestitures, and foreign exchange, saw a 4% year-over-year improvement. This was driven by a 4% increase in pricing, with product mix and volume remaining flat.

Segment-wise, net sales increased by 1% for Beauty, 6% for Grooming, 4% for Health Care, 5% for Fabric & Home Care, and 2% for the Baby, Feminine & Family Care segment. All business segments reported growth in organic sales, with increases of 1% for Beauty, 9% for Grooming, 6% for Fabric & Home Care, 2% for Health Care, and 3% for the Baby, Feminine & Family Care segment.

In the pre-market session, the company’s shares gained 1% in response to the strong bottom-line results. Procter & Gamble’s stock has exhibited a 4.4% increase over the past year compared to the industry’s 2.4% growth.

Margins

During the reported quarter, the gross margin expanded by 520 basis points (bps) to 52.7%. Favorable currency rates contributed 0.6% to the gross margin, and the currency-neutral gross margin improved by 590 bps to 53.4%. The increase was attributed to pricing gains of 190 bps, favorable commodity costs of 200 bps, and gross productivity savings of 240 bps. However, this was partially offset by a 40-bps impact of negative product mix and 60 bps from product reinvestments and other factors.

Core selling, general, and administrative expenses (SG&A) as a percentage of sales increased by 120 bps to 25.7% compared to the year-ago quarter. Currency had a minimal negative impact of 0.1% on the SG&A expense rate. On a currency-neutral basis, the SG&A expense rate increased by 110 bps to 25.6%. The rise was driven by a 290-bps increase in reinvestments, offset by 100-bps of productivity savings, an 80-bps net sales growth leverage, and other impacts.

The core operating margin expanded by 400 bps from the previous year to 27%. Currency rates provided a 0.7% boost to the operating margin, and on a currency-neutral basis, the operating margin increased by 470 bps to 27.7%. The operating margin included gross productivity savings of 340 bps.

Financials

As of the end of the second quarter of fiscal 2024, Procter & Gamble held cash and cash equivalents of $7,890 million, long-term debt of $23,096 million, and total shareholders’ equity of $48,829 million. The company generated an operating cash flow of $10,004 million for the six months ending December 31, 2023, with an adjusted free cash flow of $4,283 million and a productivity rate of 95% in the fiscal second quarter.

Procter & Gamble returned $3.3 billion to shareholders in the second quarter of fiscal 2024, including $2.3 billion in dividend payouts and $1 billion in share buybacks.

FY24 Guidance

Management maintained its sales outlook but adjusted its core and GAAP EPS projections for fiscal 2024. The company anticipates all-in sales growth of 2-4%, with organic sales expected to increase by 4-5%. Currency movements are projected to have a negative impact of 1-2% on all-in sales growth.

Procter & Gamble expects reported EPS to decline between 1% and remain flat compared to the previous year. Earlier predictions had suggested a 6-9% increase in GAAP EPS year over year, with fiscal 2023’s figure standing at $5.90. Core EPS is now expected to rise by 6-9% to a range of $6.37-$6.43.

The fiscal 2024 earnings forecast accounts for an after-tax headwind of $800 million related to favorable commodity costs, net of adverse currency impacts. Unfavorable currency rates are expected to pose a headwind of $1 billion after tax. The company also projects a net impact of interest expenses and interest income to be a headwind of $100 million after tax.

Procter & Gamble foresees a core effective tax rate of 21% for fiscal 2024 and expects capital expenditures to represent 4% of net sales. Adjusted free cash flow productivity is estimated at 90% for fiscal 2024. The company plans to allocate more than $9 billion for dividend payments and $5-$6 billion for share repurchases in fiscal 2024.

Featured Image: Freepik

Please See Disclaimer