P&G Posts Q2 Beat & Raises Guidance; Shares Up 3.4%

Procter & Gamble Company (NYSE: PG) shares gained 3.4% on January 19 to close at $162, after the American consumer goods giant delivered stronger-than-expected fiscal second-quarter results, driven by strong top-line growth, offsetting significant cost headwinds.

P&G also raised its fiscal 2022 guidance for net sales and organic sales growth, cash productivity, and planned return to shareholders.

Q2 Performance

Q2 adjusted earnings of $1.66 per share registered a 1% year-over-year gain, and was a cent better than analysts’ expectations of $1.65 per share. The company reported earnings of $1.64 per share for the prior-year period.

Net sales jumped 6% year-over-year to $21 billion and exceeded consensus estimates of $20.34 billion. The increase in revenues reflected a 6% increase in organic sales, driven by higher shipment volumes and better pricing, which offset the increases in commodity and other input costs.

However, gross margin declined 400 basis points due to higher commodity costs, a negative product mix, increased freight costs, and product/package reinvestments, which offset the benefits of increased pricing and gross productivity savings.

Raises Fiscal 2022, Sales Outlook & Higher Return of Capital

Based on robust Q2 results, the company raised its financial guidance for fiscal 2022 for sales growth, cash productivity and cash return to shareholders.

For fiscal 2022, the company now forecasts all-in sales growth of 3% to 4% higher than the prior guidance of 2% to 4%. Further, the company expects higher organic sales growth in the range of 4% to 5% versus 2% to 4% guided earlier.

However, the company continues to expect adjusted earnings to grow 3% to 6% year-over-year.

Notably, P&G increased its outlook for adjusted free cash flow productivity to 95%. Furthermore, P&G now plans to return $17 billion to $18 billion of cash to shareholders in the form of dividends of over $8 billion, along with share repurchases ranging between $9 billion to $10 billion.

CEO Comments

P&G CEO, Jon Moeller, commented, “Our focus remains on the strategies of superiority, productivity, constructive disruption and continually improving P&G’s organization structure and culture.”

He further added, “These strategies have enabled us to build and sustain strong momentum. They remain the right strategies to deliver balanced growth and value creation.”

Wall Street’s Take

Following robust Q2 results and raised guidance, Goldman Sachs analyst Jason English reiterated a Buy rating on P&G, with the price target of $176 (8.6% upside potential).

Sharing his view on the company’s raised outlook, English stated, “The guidance is inline with the expectations that most investors we spoke with had ahead of results.”

Consensus among analysts is a Strong Buy based on 7 Buys and 2 Holds. The average Procter and Gamble stock price projection of $170 implies 4.94% upside potential to current levels.

TipRanks’ Smart Score

PG scores an 8 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

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