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Procter’s earnings begin to show weakness in the fourth quarter

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Procter and Gamble (NYSE: PCG) is an American multinational consumer goods company headquartered in Cincinnati, Ohio. P&G reported profit at 29e July 2022, and the shares fell 4% in pre-market on results.


MarketBeat.com – MarketBeat

“Fiscal year 2022 was another strong year,” said Jon Moeller, chairman of the board, president and chief executive officer. “The execution of our integrated strategies by the P&G team delivered strong top-line growth, earnings growth and significant cash returns to shareholders, despite severe costs and operational headwinds. As we look to fiscal 2023, we expect another year of significant headwinds. Committing to our integrated strategies of superiority, productivity, constructive disruption and an agile and accountable organizational structure remain the right strategies to address the short-term challenges we face and to continue to deliver balanced growth and value creation.”

Prudent management leads to another strong quarter

Procter posted revenue of $19.52 billion for the quarter and management wanted to point out that the company performed better than expected both above and below the line, despite headwinds from the currency of $3.3 billion. Fourth quarter earnings per share were 7% higher than the same quarter in 2021, but management has indicated that overall earnings will slow going forward.

Household and cleaning products were up 4% this year, while sales of baby food and home care grew just 2%. Sales of beauty products were flat and skin care products were up 1%.

Net sales for the year came in at $80 billion, up 5% from the previous fiscal year. Meanwhile, diluted earnings per share (EPS) came in at $5.81. Operating cash flow was $16.7 billion and adjusted free cash flow productivity was 93%. The company returned $19 billion to investors in the form of buybacks and dividends for the year.

The company faced numerous headwinds during the quarter as sales from China and Russia continued to weigh on segments such as beauty products. Lower volumes in all segments were mainly due to issues from China and Russia.

Management remains cautious about its outlook and understands that it faces numerous challenges worldwide as central banks continue to raise interest rates at the same time to curb inflation, which in turn affects purchasing power. Fiscal 2023 EPS is expected to be 2% higher and revenue is expected to be approximately 3-5% higher with comparable levels of organic sales.

P&G continues to be a well-known global brand selling important everyday household items. The company expected higher single digit revenues for the year and could meet those targets next year as expansion into emerging markets begins to pay dividends.

valuation

Procter and Gamble is facing cyclical issues and valuation remains slightly higher than investors are comfortable with. The stock currently trades at a P/E ratio of 24x and has a 2.5% dividend yield. With US 10-year Treasuries now trading at around 3%, the stock is likely to fall slightly, especially if growth remains weaker than expected. In addition, the company’s net profit margins were higher than expected last year, and that could change, especially if inflationary pressures continue. To date, P&G has maintained a net profit margin of 17-18% by passing costs on to consumers. But the strategy has limitations, despite the company falling under the sustainable consumer goods category.

Debt to equity remains low and management has indicated it will continue to reduce debt, with long-term debt currently at $22 billion, but the balance sheet remains relatively safe for now. Cash fell to $10 billion for the fiscal year, thanks in large part to buybacks and dividends. The company’s current ratio also remains healthy at 4:1 and there is very little chance of any major debt-related issues emerging.

P&G has strong institutional ownership, but insiders keep selling

P&G remains a blue-chip stock and has a five-year beta of .39, making it a stock that is not very volatile. The firm’s largest institutional investors include Vanguard, State Street Advisors and T.Rowe Price, all well-known names in the industry. But in recent quarters, corporate executives and insiders have been selling stocks as many likely believe the stock has peaked for now.

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