Interactive Investor

ii view: Procter & Gamble shares target new high after upgrade to forecasts

21st April 2023 15:29

by Keith Bowman from interactive investor

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This owner of brands from Head & Shoulders to Lenor has increased its dividend 67 years running, and its shares are not from from record territory. Buy, sell, or hold? 

p&g proctor fairy 600

Third-quarter results to 31 March

  • Net sales up 4% to $20.1 billion
  • Earnings Per Share (EPS) up 3% to $1.37
  • Quarterly dividend up 3% from the prior quarter to $0.9407 per share

Chief executive Jon Moeller said:

“We delivered strong results in the third quarter of fiscal year 2023 in what continues to be a very difficult cost and operating environment. 

“We remain committed to our integrated strategies of a focused product portfolio of daily use categories where performance drives brand choice, superiority, productivity, constructive disruption and an agile and accountable organization structure.”

ii round-up:

Consumer goods giant Procter & Gamble Co (NYSE:PG) today detailed sales and earnings which beat Wall Street hopes, helping it upgrade full-year sales and share buyback expectations. 

Product price hikes countered lower customer demand volumes, pushing third quarter revenue up 4% to $20.1 billion and ahead of forecasts for $19.3 billion. The owner of brands including Aerial, Fairy and Gillette now expects to spend $7.4-$8 billion on its full-year share buybacks, up from a previous $6-$8 billion. 

The Dow Jones constituent rose by more than 3% in US trading having come into this latest news down around 7% over the last year. That’s similar to Colgate-Palmolive Co (NYSE:CL) and marginally below a fall of 3% for the Dow index itself. P&G shares are now less than $10 from their record high just above $165, set in 2022.

Procter competes against the likes of Unilever (LSE:ULVR) in making and selling an array of branded personal consumer goods products such as shampoos and home care items like washing powder. 

Third-quarter earnings for P&G rose 3% year-over-year to $1.37 per share, surpassing forecasts closer to $1.32 and aided by higher revenues and a continued focus on productivity improvements. 

Organic volumes fell across all of its product categories apart from health care and including its toothpaste brands Crest and Oral-B, where they gained 1%. 

Stripping out acquisitions, organic full year sales growth is now expected to come in at around 6%, up from a prior 4-5%. 

Earlier in April, P&G declared a quarterly dividend of $0.9407 per share, up 3% from the prior quarter. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares following the results. 

ii view:

Started in 1837, P&G today operates in around 70 countries, employing over 100,000 people.  Fabric & Home Care generate its biggest slug of sales at around 35%, followed by Baby, Feminine and Family care at 25%, Beauty at 18%, Healthcare at 14% and Grooming the balance of 8%. Geographically, North America accounts for just under half of overall sales, followed by Europe at 21%, China 10% and the rest of the world the balance.

For investors, an uncertain economic outlook, including higher interest rates and a cost-of-living crisis, now offer a tough backdrop for its customers. Costs for businesses remain elevated, environmental factors deserve consideration, while major stockists of its products such as Tesco (LSE:TSCO) and Sainsbury (J) (LSE:SBRY) in the UK continue to push their own label product range.  

On the upside, P&G’s long list of household goods feature regularly for shoppers globally. Management initiatives to sharpen productivity persist, while a forecast dividend yield of around 2.5% is not to be ignored, particularly given its payment of a dividend for over 130 consecutive years since its incorporation in 1890. 

For now, P&G continues to remain worthy of a position in many already 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

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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