10-QPeriod: Q1 FY2021

PROCTER & GAMBLE Co Quarterly Report for Q1 Ended Sep 30, 2020

Filed October 20, 2020For Securities:PG

Summary

Procter & Gamble (PG) reported strong performance for the first quarter of fiscal year 2021, with net sales increasing by 9% year-over-year to $19.3 billion. This growth was driven by a 7% increase in unit volume, supported by a mid-teen increase in Fabric & Home Care, and double-digit growth in Health Care, demonstrating resilience and consumer demand for essential products. Net earnings attributable to P&G surged by 19% to $4.3 billion, translating to a 20% increase in diluted Earnings Per Share (EPS) to $1.63. The company highlighted the positive impact of the COVID-19 pandemic on demand for certain product categories, such as fabric, home cleaning, and hygiene products, while also noting some slowdowns in beauty and grooming categories due to economic conditions and consumer movement restrictions in specific regions. Operationally, P&G achieved significant gross margin expansion, up 170 basis points to 52.7%, benefiting from manufacturing cost savings and lower commodity costs. Selling, general, and administrative (SG&A) expenses as a percentage of sales decreased, indicating improved operational leverage. The company also reported robust operating cash flow of $4.7 billion and adjusted free cash flow of $4.1 billion, with a strong productivity of 95%. Management's outlook suggests continued focus on productivity and cost savings, with expectations for fiscal year 2021 restructuring costs to be within the historical ongoing range. The company also announced plans to retire approximately $2.3 billion of outstanding debt securities, underscoring a commitment to financial discipline.

Financial Highlights

52 data points
Beta

Revenue

$19.32B

52.7% Gross Margin

Net Income

$4.31B

22.3% Net Margin

EPS (Diluted)

$1.63

Total Assets

$119.90B

Cash & Equivalents

$13.39B

Free Cash Flow

$3.89B

Financial Statements
Beta
Revenue$19.32B
Cost of Revenue$9.14B
Gross Profit$10.18B
SG&A Expenses$4.89B
Operating Income$5.28B
Interest Expense$136.00M
Net Income$4.31B
EPS (Basic)$1.69
EPS (Diluted)$1.63
Shares Outstanding (Basic)2.49B
Shares Outstanding (Diluted)2.63B

Key Highlights

  • 1Net sales increased by 9% to $19.3 billion, driven by a 7% increase in unit volume, with notable strength in Fabric & Home Care and Health Care segments.
  • 2Net earnings attributable to P&G rose by 19% to $4.3 billion, with diluted EPS growing 20% to $1.63.
  • 3Gross margin improved by 170 basis points to 52.7%, supported by manufacturing cost savings and lower commodity costs.
  • 4Operating cash flow was strong at $4.7 billion, and adjusted free cash flow reached $4.1 billion with 95% productivity.
  • 5The COVID-19 pandemic positively impacted demand for essential products like cleaning and hygiene items, while affecting beauty and grooming categories in certain regions.
  • 6The company plans to reduce outstanding shares through repurchases of $7 to $9 billion in fiscal year 2021.
  • 7P&G announced a plan to early retire approximately $2.3 billion of outstanding debt securities.

Frequently Asked Questions

The COVID-19 pandemic had mixed impacts. It significantly increased demand for essential product categories like fabric care, home cleaning, and personal hygiene products, leading to sales growth, particularly in North America and Europe. However, it also led to decreased sales in certain beauty and grooming products and experienced economic slowdowns and restricted consumer movements in regions like IMEA, Asia Pacific, and Latin America.

Net sales increased by 9% driven by a 7% rise in unit volume, favorable pricing, and mix effects, with strong performance across most segments. Net earnings increased by 19% due to higher net sales, improved operating margins resulting from manufacturing cost savings and reduced SG&A expenses, partially offset by a higher effective tax rate.

P&G demonstrated strong cash generation, with robust operating cash flow and adjusted free cash flow. The company plans to repurchase $7 to $9 billion of shares in fiscal year 2021 and has announced a plan to retire approximately $2.3 billion of outstanding debt securities, indicating a focus on financial deleveraging and returning capital to shareholders.

The company identifies the Gillette indefinite-lived intangible asset as most susceptible to future impairment risk. While management's current assessment indicates no impairment, significant uncertainty remains regarding the duration and impact of the COVID-19 pandemic, which could negatively affect sales and earnings growth assumptions used in impairment testing, potentially leading to future impairment charges if conditions worsen.