P&G Announces Fiscal Year 2022 Third Quarter Results

The Procter & Gamble Company reported third quarter fiscal year 2022 net sales of $19.4 billion, an increase of seven percent versus the prior year. Excluding the impacts of foreign exchange, acquisitions and divestitures, organic sales increased 10%. Diluted net earnings per share were $1.33, an increase of six percent versus prior year EPS.

Operating cash flow was $3.2 billion for the quarter. Adjusted free cash flow productivity was 74%. The Company returned over $3.4 billion of cash to shareholders via approximately $2.2 billion of dividend payments and $1.2 billion of common stock repurchases.

“We delivered another quarter with strong sales growth and made sequential earnings growth progress despite significant and increasing cost headwinds,” said Jon Moeller, President and Chief Executive Officer. “These results enable us to raise our top-line growth outlook for the fiscal year and to maintain our EPS guidance range. Our focus remains on the strategies of superiority, productivity, constructive disruption and continually improving P&G’s organization and culture. These strategies have enabled us to build and sustain strong momentum. They remain the right strategies to manage through the near-term cost and operational challenges we’re facing and to deliver long-term balanced growth and value creation.”

January – March Quarter Discussion

Net sales in the third quarter of fiscal year 2022 were $19.4 billion, a seven percent increase versus the prior year. Organic sales, which exclude the impacts of foreign exchange and acquisitions and divestitures, increased 10%. The organic sales increase was driven by a three percent increase in shipment volumes, five percent from increased pricing, and a two percent increase from positive geographic and product mix.

• Beauty segment organic sales increased three percent versus year ago. Skin and Personal Care organic sales increased low single digits due to increased pricing and market growth, partially offset by negative product mix. Hair Care organic sales increased low single digits driven by increased pricing partially offset by pandemic-related volume slowdowns.
• Grooming segment organic sales increased eight percent versus year ago. Shave Care organic sales increased double digits due to innovation, market growth, increased pricing and positive mix from growth of premium products and developed markets. All regions grew organic sales. Appliances organic sales decreased low single digits, versus a base period that benefited from a pandemic-related consumption increase of in-home shavers and stylers.
• Health Care segment organic sales increased 16% versus year ago. Oral Care organic sales increased high single digits due to continued growth of premium products and increased pricing. Personal Health Care organic sales increased more than 30% due to a stronger cough, cold and flu season versus the prior year, and innovation in sleep and digestive wellness. All regions grew organic sales.
• Fabric and Home Care segment organic sales increased 10% versus year ago. Fabric Care organic sales increased double digits led by strong growth behind premiumization, innovation and increased pricing. Home Care organic sales increased mid-single digits due to increased pricing, versus a base period that benefited from a pandemic-related consumption increase of cleaning products.
• Baby, Feminine and Family Care segment organic sales increased 10% versus year ago. Baby Care organic sales increased double digits due to market growth, innovation and increased pricing. Feminine Care organic sales increased double digits driven by innovation, market growth, positive product mix and increased pricing. Organic sales grew in all regions. Family Care organic sales increased mid-single digits due to increased pricing.

Diluted net earnings per share increased by six percent to $1.33, driven by higher net sales and a reduction in shares outstanding partially offset by a slight decline in operating margin. Currency-neutral EPS were up 10% versus the prior year EPS.

Gross margin for the quarter decreased 400 basis points versus year ago, 380 basis points on a currency-neutral basis. The decline was driven by 410 basis points of increased commodity costs, 80 basis points of higher freight costs, 30 basis of product/package reinvestments and 130 basis points of negative product mix. These were partially offset by benefits of 220 basis points from increased pricing and 50 basis points from gross productivity savings and other impacts.

Selling, general and administrative expense (SG&A) as a percentage of sales decreased 380 basis points versus year ago, 400 basis points on a currency-neutral basis. The decrease was driven by 270 basis points of leverage benefit due to increased sales and 130 basis points of gross productivity savings from overhead and marketing expenses.

Operating margin for the quarter decreased 10 basis points versus the prior year and increased 20 basis points on a currency-neutral basis. Operating margin included gross productivity cost savings of 170 basis points.

Fiscal Year 2022 Guidance

P&G raised its outlook for fiscal 2022 all-in sales growth from a range of three to four percent to a range of four to five percent versus the prior fiscal year. The Company also raised its guidance for organic sales growth from a range of four to five percent to a range of six to seven percent. Foreign exchange is now expected to be a two 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 added that given increased cost and foreign exchange challenges, it now expects to be at the low end of the fiscal year core EPS growth range at three percent.

P&G said its current fiscal 2022 outlook includes headwinds of $2.5 billion after-tax from higher commodity costs, $400 million after-tax from higher freight costs and $300 million after-tax from negative foreign exchange impacts. Combined, these items are a $3.2 billion after-tax headwind, or approximately $1.26 per share, to fiscal 2022 earnings versus fiscal 2021. The $3.2 billion headwind is an increase of $400 million after-tax versus guidance provided in January, with much of this increase affecting the Company’s fiscal fourth quarter.

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% to 19% 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 continues to expect adjusted free cash flow productivity of 95% and now expects to pay over $8 billion in dividends and to repurchase approximately $10 billion of common shares in fiscal 2022. Combined, P&G plans to return over $18 billion of cash to shareowners in the fiscal year.

Forward-Looking Statements

Certain statements in this release or presentation, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, except to the extent required by law.

Risks and uncertainties to which our forward-looking statements are subject include, without limitation: (1) the ability to successfully manage global financial risks, including foreign currency fluctuations, currency exchange or pricing controls and localized volatility; (2) the ability to successfully manage local, regional or global economic volatility, including reduced market growth rates, and to generate sufficient income and cash flow to allow the Company to affect the expected share repurchases and dividend payments; (3) the ability to manage disruptions in credit markets or to our banking partners or changes to our credit rating; (4) the ability to maintain key manufacturing and supply arrangements (including execution of supply chain optimizations and sole supplier and sole manufacturing plant arrangements) and to manage disruption of business due to various factors, including ones outside of our control, such as natural disasters, acts of war (including the Russia-Ukraine War) or terrorism or disease outbreaks; (5) the ability to successfully manage cost fluctuations and pressures, including prices of commodities and raw materials, and costs of labor, transportation, energy, pension and healthcare; (6) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to changing consumer habits, evolving digital marketing and selling platform requirements and technological advances attained by, and patents granted to, competitors; (7) the ability to compete with our local and global competitors in new and existing sales channels, including by successfully responding to competitive factors such as prices, promotional incentives and trade terms for products; (8) the ability to manage and maintain key customer relationships; (9) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about safety, quality, ingredients, efficacy, packaging content, supply chain practices or similar matters that may arise; (10) the ability to successfully manage the financial, legal, reputational and operational risk associated with third-party relationships, such as our suppliers, contract manufacturers, distributors, contractors and external business partners; (11) the ability to rely on and maintain key company and third party information and operational technology systems, networks and services, and maintain the security and functionality of such systems, networks and services and the data contained therein; (12) the ability to successfully manage uncertainties related to changing political conditions and potential implications such as exchange rate fluctuations and market contraction; (13) the ability to successfully manage current and expanding regulatory and legal requirements and matters (including, without limitation, those laws and regulations involving product liability, product and packaging composition, intellectual property, labor and employment, antitrust, privacy and data protection, tax, environmental, due diligence, risk oversight and accounting and financial reporting) and to resolve new and pending matters within current estimates; (14) the ability to manage changes in applicable tax laws and regulations including maintaining our intended tax treatment of divestiture transactions; (15) the ability to successfully manage our ongoing acquisition, divestiture and joint venture activities, in each case to achieve the Company’s overall business strategy and financial objectives, without impacting the delivery of base business objectives; (16) the ability to successfully achieve productivity improvements and cost savings and manage ongoing organizational changes, while successfully identifying, developing and retaining key employees, including in key growth markets where the availability of skilled or experienced employees may be limited; and (17) the ability to successfully manage the demand, supply and operational challenges associated with a disease outbreak, including epidemics, pandemics or similar widespread public health concerns (including COVID-19). For additional information concerning factors that could cause actual results and events to differ materially from those projected herein, please refer to our most recent 10-K, 10-Q and 8-K reports.