Net Sales +6%; Organic Sales +6%;
Diluted EPS +13%; Core EPS +1%
RAISES FISCAL YEAR 2022 SALES AND CASH GUIDANCE, CONFIRMS EPS OUTLOOK
The Procter & Gamble Company (NYSE:PG) reported second quarter fiscal year 2022 net sales of $21.0 billion, an increase of six percent versus the prior year. Excluding the impacts of foreign exchange, acquisitions and divestitures, organic sales also increased six percent. Diluted net earnings per share were $1.66, an increase of 13% versus prior year GAAP EPS and an increase of one percent versus prior year Core EPS.
Operating cash flow was $5.1 billion for the quarter. Adjusted free cash flow productivity was 106%. The Company returned nearly $7 billion of cash to shareholders via $2 billion of dividend payments and nearly $5 billion of common stock repurchases.
| $ billions, except EPS |
| Second Quarter |
| GAAP |
2022 |
2021 |
% Change |
|
Non-GAAP* |
2022 |
2021 |
% Change |
| Net Sales |
21.0 |
19.7 |
6% |
|
Organic Sales |
n/a |
n/a |
6% |
| Diluted EPS |
1.66 |
1.47 |
13% |
|
Core EPS |
1.66 |
1.64 |
1% |
| *Please refer to Exhibit 1 - Non-GAAP Measures for the definition and reconciliation of these measures to the related GAAP measures. |
| |
“We delivered very strong top-line growth and made sequential progress on earnings in the face of significant cost headwinds,” said Jon Moeller, President and Chief Executive Officer. “These results keep us on track to deliver our earnings outlook and to raise estimates for sales growth, cash productivity and cash return to shareowners. Our focus remains on the strategies of superiority, productivity, constructive disruption and continually improving P&G’s organization structure and culture. These strategies have enabled us to build and sustain strong momentum. They remain the right strategies to deliver balanced growth and value creation.”
October - December Quarter Discussion
Net sales in the second quarter of fiscal year 2022 were $21.0 billion, a six percent increase versus the prior year. Organic sales, which exclude the impacts of foreign exchange, acquisitions and divestitures also increased six percent. The increase in organic sales was driven by a three percent increase in shipment volumes and three percentage points of increased pricing to help offset the significant commodity and other input cost increases. Mix was neutral to net sales growth.
| October - December 2021 |
|
Volume |
|
Foreign Exchange |
|
Price |
|
Mix |
|
Other (2) |
|
Net Sales |
|
|
Organic Volume |
|
Organic Sales |
| Net Sales Drivers (1) |
|
|
|
|
|
|
|
|
|
| Beauty |
|
1% |
|
1% |
|
2% |
|
(1)% |
|
—% |
|
3% |
|
|
1% |
|
2% |
| Grooming |
|
1% |
|
(1)% |
|
4% |
|
1% |
|
(1)% |
|
4% |
|
|
1% |
|
5% |
| Health Care |
|
4% |
|
—% |
|
1% |
|
3% |
|
—% |
|
8% |
|
|
4% |
|
8% |
| Fabric & Home Care |
|
7% |
|
(1)% |
|
2% |
|
(1)% |
|
—% |
|
7% |
|
|
7% |
|
8% |
| Baby, Feminine & Family Care |
|
1% |
|
—% |
|
3% |
|
1% |
|
—% |
|
5% |
|
|
1% |
|
5% |
| Total P&G |
|
3% |
|
—% |
|
3% |
|
—% |
|
—% |
|
6% |
|
|
3% |
|
6% |
| (1) |
Net sales percentage changes are approximations based on quantitative formulas that are consistently applied. |
| (2) |
Other includes the sales mix impact from acquisitions and divestitures and rounding impacts necessary to reconcile volume to net sales. |
- Beauty segment organic sales increased two percent versus year ago. Skin and Personal Care organic sales increased low single digits primarily driven by volume growth in Personal Care due to innovation, market growth and pricing, partially offset by negative product mix. Hair Care organic sales increased low single digits primarily driven by increased pricing.
- Grooming segment organic sales increased five percent versus year ago. Shave Care organic sales increased mid-single digits primarily due to volume growth, increased pricing and positive product and geographic mix from growth in developed markets. Appliances organic sales increased mid-single digits due to increased pricing and positive mix driven by the growth of premium shavers and stylers. This was partially offset by lower volumes versus a high base period which benefited from a pandemic-related consumption surge of in-home shavers and stylers.
- Health Care segment organic sales increased eight percent versus year ago. Oral Care organic sales increased low single digits driven by positive mix from a higher proportion of premium paste and whitening products and innovation-based price increases. Personal Health Care organic sales increased about 20% due primarily to growth in respiratory products due to a more intense cough/cold/flu season versus the prior year. Each region delivered double digit organic sales growth for the quarter in Personal Health Care.
- Fabric and Home Care segment organic sales increased eight percent versus year ago. Fabric Care organic sales increased double digits led by strong growth of unit dose detergents and fabric enhancers. Home Care organic sales increased low single digits due to increased pricing and increased volume from innovation versus a high base period which also benefited from strong pandemic-related consumption of home cleaning products.
- Baby, Feminine and Family Care segment organic sales increased five percent versus year ago. Baby Care organic sales increased high single digits driven by increased pricing, market growth and positive product mix from the growth of premium taped and pant-style diapers. Feminine Care organic sales increased double digits driven by commodity-based price increases, innovation and positive geographic and product mix. Family Care organic sales were in-line with prior year as pricing benefits were offset by unfavorable mix and lower volumes versus pandemic-related consumption increases in the base period.
Diluted net earnings per share were $1.66 for the quarter, a 13% increase versus the prior year GAAP EPS which included a charge for the early extinguishment of debt. Diluted net EPS increased one percent versus the prior year Core EPS, driven by an increase in net sales and a reduction in shares outstanding, partially offset by a reduction in operating margin caused by higher commodity and freight costs as anticipated. Currency-neutral net EPS were up two percent versus the prior year Core EPS.
Gross margin for the quarter decreased 400 basis points versus year ago, 410 basis points on a currency-neutral basis. Reductions in gross margin were driven by 400 basis points of higher commodity costs, 140 basis points driven by negative product mix, 60 basis points from increased freight costs, and 20 basis points of product/package reinvestments. These were partially offset by 130 basis points of benefit from increased pricing and 80 basis points of gross productivity savings.
Selling, general and administrative expense (SG&A) as a percentage of sales decreased 150 basis points versus the prior year, 170 basis points on a currency-neutral basis. The decrease was driven by 150 basis points of cost leverage benefit from increased sales and 70 basis points of gross productivity savings from overhead and marketing expenses, partially offset by 50 basis points of marketing spending and overhead investments net of other impacts.
Operating margin for the quarter decreased 250 basis points versus the prior year, 240 basis points on a currency-neutral basis. Operating margin included gross productivity cost savings of 150 basis points.
Fiscal Year 2022 Guidance
P&G raised its outlook for fiscal 2022 all-in sales growth from a range of two to four percent to a range of three to four percent versus the prior fiscal year. The Company also raised its guidance for organic sales growth from a range of two to four percent to a range of four to five percent. Foreign exchange is now expected to be a one percentage point headwind to all-in sales growth for the fiscal year.
P&G confirmed its outlook for fiscal 2022 GAAP diluted net earnings per share growth in the range of six to nine percent versus fiscal 2021 GAAP EPS of $5.50. The Company continues to expect core earnings per share growth for fiscal 2022 in the range of three to six percent versus fiscal 2021 Core EPS of $5.66.
The Company said its current fiscal 2022 outlook includes headwinds of $2.3 billion after-tax from higher commodity costs, $300 million after-tax from higher freight costs and $200 million after-tax from negative foreign exchange impacts. Combined, these items are a $2.8 billion after-tax headwind, or approximately $1.10 per share, to fiscal 2022 earnings versus fiscal 2021.
The Company is not able to reconcile its forward-looking non-GAAP cash flow measure and tax rate measures without unreasonable efforts because the Company cannot predict the timing and amounts of discrete cash items, such as acquisitions, divestitures, or impairments, which could significantly impact GAAP results.
P&G continues to estimate a core effective tax rate in the range of 18% to 19% in fiscal 2022.
Capital spending is estimated to be in the range of four percent to five percent of fiscal 2022 net sales.
P&G increased its outlook for adjusted free cash flow productivity to 95% and now expects to pay over $8 billion in dividends and repurchase $9 billion to $10 billion of common shares in fiscal 2022. Combined, P&G now plans to return $17 billion to $18 billion of cash to shareowners in the fiscal year.
Forward-Looking Statements
Certain statements in this release or presentation, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, except to the extent required by law.
Risks and uncertainties to which our forward-looking statements are subject include, without limitation: (1) the ability to successfully manage global financial risks, including foreign currency fluctuations, currency exchange or pricing controls and localized volatility; (2) the ability to successfully manage local, regional or global economic volatility, including reduced market growth rates, and to generate sufficient income and cash flow to allow the Company to affect the expected share repurchases and dividend payments; (3) the ability to manage disruptions in credit markets or to our banking partners or changes to our credit rating; (4) the ability to maintain key manufacturing and supply arrangements (including execution of supply chain optimizations and sole supplier and sole manufacturing plant arrangements) and to manage disruption of business due to various factors, including ones outside of our control, such as natural disasters, acts of war or terrorism or disease outbreaks; (5) the ability to successfully manage cost fluctuations and pressures, including prices of commodities and raw materials, and costs of labor, transportation, energy, pension and healthcare; (6) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to changing consumer habits, evolving digital marketing and selling platform requirements and technological advances attained by, and patents granted to, competitors; (7) the ability to compete with our local and global competitors in new and existing sales channels, including by successfully responding to competitive factors such as prices, promotional incentives and trade terms for products; (8) the ability to manage and maintain key customer relationships; (9) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about safety, quality, ingredients, efficacy, packaging content, supply chain practices or similar matters that may arise; (10) the ability to successfully manage the financial, legal, reputational and operational risk associated with third-party relationships, such as our suppliers, contract manufacturers, distributors, contractors and external business partners; (11) the ability to rely on and maintain key company and third party information and operational technology systems, networks and services, and maintain the security and functionality of such systems, networks and services and the data contained therein; (12) the ability to successfully manage uncertainties related to changing political conditions and potential implications such as exchange rate fluctuations and market contraction; (13) the ability to successfully manage current and expanding regulatory and legal requirements and matters (including, without limitation, those laws and regulations involving product liability, product and packaging composition, intellectual property, labor and employment, antitrust, privacy and data protection, tax, environmental, due diligence, risk oversight and accounting and financial reporting) and to resolve new and pending matters within current estimates; (14) the ability to manage changes in applicable tax laws and regulations including maintaining our intended tax treatment of divestiture transactions; (15) the ability to successfully manage our ongoing acquisition, divestiture and joint venture activities, in each case to achieve the Company’s overall business strategy and financial objectives, without impacting the delivery of base business objectives; (16) the ability to successfully achieve productivity improvements and cost savings and manage ongoing organizational changes, while successfully identifying, developing and retaining key employees, including in key growth markets where the availability of skilled or experienced employees may be limited; and (17) the ability to successfully manage the demand, supply and operational challenges associated with a disease outbreak, including epidemics, pandemics or similar widespread public health concerns (including the COVID-19 outbreak). For additional information concerning factors that could cause actual results and events to differ materially from those projected herein, please refer to our most recent 10-K, 10-Q and 8-K reports.
About Procter & Gamble
P&G serves consumers around the world with one of the strongest portfolios of trusted, quality, leadership brands, including Always®, Ambi Pur®, Ariel®, Bounty®, Charmin®, Crest®, Dawn®, Downy®, Fairy®, Febreze®, Gain®, Gillette®, Head & Shoulders®, Lenor®, Olay®, Oral-B®, Pampers®, Pantene®, SK-II®, Tide®, Vicks®, and Whisper®. The P&G community includes operations in approximately 70 countries worldwide. Please visit http://www.pg.com for the latest news and information about P&G and its brands. For other P&G news, visit us at http://www.pg.com/news.
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