On Wednesday, January 19, EST, consumer goods giant Procter & Gamble (PG) announced its financial results for the fourth quarter ended December 31, 2021, the company's fiscal second fiscal 2022 quarter, and raised its full-year guidance for fiscal year 2022.
Although inflation is on the rise, but the price increase is higher than the rise in costs, Procter & Gamble earnings are higher than expected, as of the post, the US stock market rose by 4.6%, the largest intraday increase since April 2020.
- Net sales for the fiscal second quarter were $21 billion, compared to a market estimate of $20.35 billion, and organic revenue, excluding acquisitions and divestiture transactions and foreign exchange rate impacts, increased 6 percent in the quarter.
- Core earnings per share for the fiscal second quarter were $1.66, compared to a market estimate of $1.65.
- Net income for the fiscal second quarter was $4.22 billion, up 10% year-over-year.
- Among the various products, the medical and health category, including Ore-B and baby ointment brand Vickers, performed the best, with organic sales revenue up 20% in the third quarter; organic sales of Fabrics and Home Care products in P&G's largest category, including Tide, Mr. Clean and Febreze, up 8%; organic sales of cleaning products including razor brand Gillette increased by 5%; organic sales of infant, female and home care categories including SK-II increased by 5% The beauty division, which acquired Farmacy Beauty, hair care brandOuai and Tula Skin Care, saw the smallest increase in organic sales in the quarter of the quarter, at just 2 percent.
At the same time, P&G also raised its fiscal year 2022 guidance and announced a $9 billion to $10 billion buyback program:
- Core EPS growth is forecast to be +3% to +6% for the full year.
- Core earnings per share are forecast for the full year at $5.83 to $6.00, compared to a market estimate of $5.91.
- Full-year organic revenue is expected to be +4% to +5%, compared with the previous forecast of +2% to +4%.
For the second consecutive quarter, P&G raised its inflation forecast and passed on cost increases to consumers
Last fiscal quarter, P&G had raised its cost forecast, having previously forecast that the company would spend $2.1 billion, or 10.5 percent, on the cost of transportation and raw materials such as resins for the entire fiscal year ending June.
Just last week, the U.S. Bureau of Labor Statistics released data showing that the U.S. CPI rose 7.0 percent year-on-year in December, accelerating again, the fastest gain since June 1982; also up 6.8 percent from the previous value.
CPI data has reached or risen above 5% for eight consecutive months, and it is not an easy task for the FMCG giant, with Procter & Gamble expected to pay $2.3 billion in after-tax merchandise costs and $300 million in after-tax freight rates, higher than the $2.1 billion cost of goods and $200 million freight outlook last quarter. Coupled with the $200 million shock from foreign exchange, it expects earnings in fiscal 2022 to have a shortfall of $2.8 million compared to the previous year, or $1.10 per share.
In the face of high costs, passing it on to consumers may be the easiest solution.
Procter & Gamble said pricing has risen by an average of 3 percent in the most recent quarter, with revenue from price increases accounting for half of total revenue, while the other half comes from increased sales. The increased revenue helped offset soaring prices for raw materials, labor and goods transportation, as supply chain woes continue to weigh on almost every industry.
Andre Schulten, Finance Director of Procter & Gamble, said that consumers are not only willing to bear higher prices, but also continue to upgrade their consumption:
Consumers are very resilient and pay a lot of attention to the categories of clean homes and health and hygiene. In addition to absorbing higher prices, consumers are turning to higher-end products, such as liquid laundry detergent in exchange for higher-cost, single-dose products.
At the same time, Schulten said that the consumption upgrade means that P&G has more opportunities:
All of this is focused on the high-end channel in the U.S., so this is an opportunity for us. We've successfully made these integrations, when you think of First Aid Beauty or Native deodorant (high-end product line).
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