Procter & Gamble Raises Core EPS Guidance

Image Source: P&G Q3 Earnings Presentation

By Brian Nelson, CFA

On April 19, Procter & Gamble (PG) reported mixed third quarter results for fiscal 2024. Organic sales advanced 3% in the period thanks almost entirely to higher pricing, while diluted net earnings per share increased 11% on a year-over-year basis (up 18% on a currency-neutral basis). The company experienced modest volume growth in its ‘Beauty,’ ‘Grooming,’ and ‘Fabric & Home Care’ divisions, but foreign currency headwinds were stiff. P&G experienced particularly strong pricing performance in its ‘Grooming’ division, where sales in the division were positively impacted by 10% from price, to drive overall net sales growth to 3% in the segment.

Management’s commentary in the press release was upbeat:

We delivered solid sales and strong earnings growth in the third quarter despite multiple headwinds, enabling us to raise our EPS growth guidance and maintain our top-line outlook for the fiscal year. We remain committed to our integrated strategy of a focused product portfolio of daily use categories where performance drives brand choice, superiority — across product performance, packaging, brand communication, retail execution and consumer and customer value — productivity, constructive disruption and an agile and accountable organization. We are increasing investments in superiority to drive market growth and sustain strong momentum. We have confidence this remains the right strategy to deliver balanced growth and value creation. 

P&G’s pricing strength continues to benefit its gross margin, which increased 300 basis points in the quarter from the prior year. Its core gross margin advanced 400 basis points on a currency-neutral basis thanks to myriad factors, including gross productivity savings, favorable commodity costs and pricing strength. Its operating margin in the quarter increased 90 basis points from the prior year. Looking to 2024, P&G maintained its guidance range for all-in sales growth of 2%-4%, with organic sales growth targeted at 4%-5%. P&G raised its diluted earnings per share outlook, however. It is now targeting 1%-2% growth (was -1% to flat) on a reported basis for 2024 and 10%-11% on a core basis (was 8%-9%). 

Image Source: P&G Q3 Earnings Presentation 

We like P&G’s long consecutive dividend growth track record (68 consecutive years), and its pricing strength was firmly on display during its fiscal third quarter. The company continues to target adjusted free cash flow productivity of 90% (operating cash flow as a percentage of net earnings), while it plans to pay $9 billion in dividends and buy back $5-$6 billion in common shares in fiscal 2024. Shares of P&G yield ~2.6% at the time of this writing.