Procter & Gamble 2Q 2022 Results: Net Sales Up 6 Percent From Year Ago to $21.0 billion

The Procter & Gamble Company 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 percent 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 percent. The Company returned nearly $7 billion of cash to shareholders via $2 billion of dividend payments and nearly $5 billion of common stock repurchases.

“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.

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 percent 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 percent 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 percent to 19 percent 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 percent 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.

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