P&G Announces Fiscal Year 2023 First Quarter Results

The Procter & Gamble Company (NYSE:PG) reported first quarter fiscal year 2023 net sales of $20.6 billion, an increase of one percent versus the prior year. Excluding the impacts of foreign exchange, acquisitions and divestitures, organic sales increased seven percent. Diluted net earnings per share were $1.57, a decrease of two percent versus prior year EPS.

Operating cash flow was $4.1 billion for the quarter. Adjusted free cash flow productivity was 86 percent. The Company returned nearly $6.3 billion of cash to shareholders via approximately $2.3 billion of dividend payments and $4 billion of common stock repurchases.

“We delivered solid results in our first quarter of fiscal 2023 in a very difficult cost and operating environment,” said Jon Moeller, chairman of the board, president and chief executive officer. “These results enable us to maintain our guidance ranges for organic sales and EPS growth for the fiscal year despite continued significant headwinds. We remain committed to our integrated strategies of a focused product portfolio, superiority, productivity, constructive disruption and an agile and accountable organization structure. These strategies have enabled us to build and sustain strong momentum. They remain the right strategies to navigate through the near-term challenges we’re facing and continue to deliver balanced growth and value creation.”

July - September Quarter Discussion

Net sales in the first quarter of fiscal year 2023 were $20.6 billion, a one percent increase versus the prior year. Unfavorable foreign exchange had a six percent impact on net sales. Organic sales, which exclude the impacts of foreign exchange and acquisitions and divestitures, increased seven percent. The organic sales increase was driven by a nine percent increase from higher pricing and a one percent increase from positive product mix, partially offset by a three percent decrease in shipment volumes.

Net sales percentage changes are approximations based on quantitative formulas that are consistently applied.

Other includes the sales mix impact from acquisitions and divestitures and rounding impact necessary to reconcile volume to net sales.

Beauty segment organic sales increased four percent versus year ago. Skin and Personal Care organic sales increased mid-single digits due to innovation-driven volume growth and increased pricing, partially offset by negative mix from the decline of SK-II. Hair Care organic sales increased mid-single digits driven by increased pricing, partially offset by volume declines related to market contraction.
Grooming segment organic sales increased five percent versus year ago due to increased pricing, partially offset by negative mix due to market slowdown of appliances.
Health Care segment organic sales increased eight percent versus year ago. Oral Care organic sales increased low single digits due to increased pricing and favorable premium product mix, partially offset by volume declines due to market contraction. Personal Health Care organic sales increased high-teens due to increased pricing, favorable mix and volume growth driven by a stronger cough, cold and flu season. All regions grew organic sales in Personal Health Care.
Fabric and Home Care segment organic sales increased eight percent versus year ago. Fabric Care organic sales increased high single digits due to increased pricing, partially offset by volume declines due to market contraction and market share softness, primarily in Europe. Home Care organic sales increased high single digits due to increased pricing, partially offset by volume declines versus a high base period of increased consumption of cleaning products. All regions grew organic sales in Home Care.
Baby, Feminine and Family Care segment organic sales increased six percent versus year ago. Baby Care organic sales increased mid-single digits due to increased pricing, partially offset by volume declines including portfolio reduction in Russia. Feminine Care organic sales increased double digits driven by increased pricing and positive geographic mix, partially offset by volume declines due to portfolio reduction in Russia. Organic sales grew in all regions. Family Care organic sales increased low single digits due to increased pricing, partially offset by lower market volumes and soft market share.

Diluted net earnings per share decreased by two percent to $1.57, driven by a decline in operating margin partially offset by higher net sales and a reduction in shares outstanding. Currency-neutral EPS were up seven percent versus the prior year EPS.

Gross margin for the quarter decreased 160 basis points versus year ago, 130 basis points on a currency-neutral basis. The decline was driven by 510 basis points of increased commodity and input material costs, 40 basis points of higher freight costs, 30 basis of product/package reinvestments and 130 basis points of negative product mix and other impacts. These were partially offset by benefits of 470 basis points from increased pricing and 110 basis points from gross productivity savings.

Selling, general and administrative expense (SG&A) as a percentage of sales decreased 90 basis points versus year ago, 140 basis points on a currency-neutral basis. The decrease was driven by 170 basis points of leverage benefit due to increased sales, 120 basis points of productivity savings from overhead and marketing expenses, partially offset by 100 basis points of overhead investments and 50 basis points of other impacts.

Operating margin for the quarter decreased 70 basis points versus the prior year and increased 10 basis points on a currency-neutral basis. Operating margin included gross productivity savings of 230 basis points.

Fiscal Year 2023 Guidance
P&G reduced its guidance range for fiscal 2023 all-in sales to be down three percent to down one percent versus the prior fiscal year. The Company maintained its outlook for organic sales growth in the range of three to five percent. Foreign exchange is now expected to be a six-percentage point headwind to all-in sales growth for the fiscal year.

P&G maintained its outlook for fiscal 2023 diluted net earnings per share growth in the range of in-line to up four percent versus fiscal 2022 EPS of $5.81. The company added that given increased foreign exchange impacts, it now expects EPS results to be towards the low end of the fiscal year guidance range.

P&G said its current fiscal 2023 outlook includes headwinds of approximately $1.3 billion after-tax due to unfavorable foreign exchange rates, $2.4 billion due to higher commodity and materials costs, and $200 million from higher freight costs. Combined, these items are a $3.9 billion after-tax headwind, or approximately $1.57 per share, to fiscal 2023 earnings versus fiscal 2022, or a headwind of approximately 27 points to EPS growth. The $3.9 billion headwind is an increase of $600 million after-tax versus guidance provided in July, primarily driven by foreign exchange.

The company is unable 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 now expects a core effective tax rate of approximately 19.5 percent in fiscal 2023.

Capital spending is estimated to be approximately 5 percent of fiscal 2023 net sales.

P&G continues to expect adjusted free cash flow productivity of 90 percent and expects to pay around $9 billion in dividends and to repurchase $6 billion to $8 billion of common shares in fiscal 2023.

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