ii view: Procter & Gamble battles China challenges

First-quarter results to 30 September

• Net sales down 1% to $21.7 billion
• Core Earnings Per Share (EPS) up 5% to $1.93
• Quarterly dividend of $1.0065 per share, unchanged from the previous quarter

Chief executive Jon Moeller said:

“We remain committed to our integrated growth strategy of a focused product portfolio of daily use categories. We have confidence this remains the right strategy to deliver balanced growth and value creation.”

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ii round-up:

Procter & Gamble Co (NYSE:PG) today detailed disappointing sales as the consumer goods giant battled China related challenges. 

The owner of brands including Ariel, Gillette and Oral-B reported a 1% fall in first-quarter revenues year-over-year to $21.7 billion, below Wall Street forecasts of $21.9 billion. Volume declines in China came as P&G moved to sidestep product price reductions from rivals to help protect profit margins. Group-wide adjusted earnings improved 5% to $1.93 per share, exceeding forecasts for $1.90.

P&G shares swung between small losses and gains in early US trading having come into this latest news up by around 17% year-to-date. That’s similar to rival Kimberly-Clark Corp (NYSE:KMB) but below a 25% gain for European competitor Unilever (LSE:ULVR). The S&P 500 index is up 22% in 2024.  

P&G sells its many consumer brands in around 70 countries, with North America its biggest at just over a half of all revenues and China second at around 7%.  

Beauty category sales such as skin care items and baby related product sales fell 5% and 2% respectively year-over-year. That was partly countered by sales growth of 1% and 2% respectively for fabric and home care products and health category items. 

The Cincinnati headquartered company maintained its estimate for annual sales growth of between 2% and 4%. 

P&G previously declared a quarterly dividend of $1.0065 per share, unchanged from the prior quarter. Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares following the results. 

ii view:

Tracing its history back to 1837, P&G today employs over 105,000 people. Fabric & Home Care generate its biggest slug of sales at around 35%, followed by Baby, Feminine and Family care at 24%, Beauty at 18%, Healthcare at 14% and Grooming the balance of 8%.

For investors, economic challenges impacting P&G’s major market China cannot be ignored. Pressured consumer incomes more widely persist given high borrowing costs. Environmental considerations warrant thought, while costs generally for businesses and including wages have increased.  

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On the upside, P&G’s long list of household goods feature regularly for shoppers across the world. Management initiatives to sharpen productivity and reduce costs persist, while more than 65 years of dividend increases leaves the shares on a forecast dividend yield of around 2.3%. 

For now, P&G looks to remain worthy of its position in many diversified long-term focused portfolios.   

Positives: 

• Product and geographical diversity
• Progressive dividend policy

Negatives:

• Uncertain economic outlook
• Currency movements can hinder performance

The average rating of stock market analysts:

Buy