ii view: Procter & Gamble cleans up after strong end to 2020

This owner of well-known consumer brands has again raised its full-year estimates. Buy, sell or hold?

Second-quarter results to 31 December

• Net sales up 8% to $19.7 billion
• Core earnings per share (eps) up 15% to $1.64

Guidance: 

• Expects full-year sales growth of between 5% to 6%, up from 3% to 4%
• Expects to repurchase $10 billion of its own shares for FY 2021, up from $7 to $9 billion 

Chief executive David Taylor said:

“We delivered another strong quarter of results across all key measures – top line, bottom line and cash. We remain focused on executing our strategies of superiority, productivity, constructive disruption and improving P&G’s organisation and culture. These strategies enabled us to build strong business momentum before the Covid crisis, accelerated our progress in calendar year 2020 and remain the right strategies to deliver balanced growth and value creation over the long term.”

ii round-up:

Consumer goods giant Procter & Gamble (NYSE:PG) raised its full-year sales estimate for the second consecutive quarter as shoppers continued to lean on its household cleaning products during the pandemic. 

Organic sales for its home care products, including dish and surface cleaning items, spiked by 30% year-over-year during the crisis. Overall group net sales during the quarter rose by 8% compared with a 9% increase in the previous first quarter.  

P&G shares drifted marginally lower in US trading following the release, although they are up around a third since late March pandemic lows. Shares for rival Unilever (LSE:ULVR) are up around 10% since late March, while Reckitt Benckiser (LSE:RB.) is up just over 5%.

Fabric and home care products generate a third of P&G sales. Healthcare products account for another 14%. P&G brands include Ariel, Fairy, Crest and Oral-B. Other brands across its beauty and grooming divisions include Pantene, Head & Shoulders, Braun and Gillette. 

Healthcare sales followed fabric and home care with a 9% gain. Baby, feminine and family Care and the beauty division tied for third place with sales up 6%. 

Management now expects to buy back as much as $10 billion of its own stock during the current fiscal year, up from a prior estimate of between $7 billion to $9 billion.

Earlier in January, the Cincinnati-headquartered company declared a quarterly dividend payment of $0.7907 per share, unchanged on the prior two quarters, although up on the previous four of $0.7459 per share. It expects to pay around $8 billion in dividends in fiscal 2021.

ii view:

Procter & Gamble is currently the eighth-largest company in the US Dow Jones 30 index with a stock value of just over $320 billion. It operates across the five divisions of Fabric and home care, Baby, feminine and family care, beauty, healthcare and grooming. It has operations in approximately 70 countries worldwide. North America accounts for just under half of its sales, with Europe at just over a fifth and Asia and China at around a tenth each. 

For investors, quality and dependability do not come cheap. The estimated forward price/earnings ratio of around 23 is above both the three and 10-year averages, suggesting any slips ups in performance would be punished. 

But its list of household brand names is long, with many products featuring regularly in stores around the world. A dividend yield of over 2% is also not to be overlooked in an era of ultra-low interest rates, particularly as it has paid a dividend for 130 consecutive years since its incorporation in 1890.  In all, Proctor appears to remain deserving of a place in many diversified long-term focused portfolios. 

Positives: 

• Product and geographical diversity
• Focus on shareholder returns

Negatives:

• Above average valuation
• Environmental product concerns

The average rating of stock market analysts:

Buy