10-QPeriod: Q1 FY2022

PROCTER & GAMBLE Co Quarterly Report for Q1 Ended Sep 30, 2021

Filed October 19, 2021For Securities:PG

Summary

Procter & Gamble (PG) reported its fiscal first-quarter results for the period ending September 29, 2021. Net sales increased by 5% year-over-year to $20.3 billion, driven by a combination of volume increases, higher pricing, and favorable foreign exchange. However, net earnings attributable to the company saw a 4% decrease to $4.1 billion, or $1.61 per diluted share, primarily due to a decline in operating margin resulting from increased commodity costs, unfavorable mix, and higher restructuring charges, which were only partially offset by pricing actions and productivity savings. Despite the dip in net earnings, the company demonstrated strong operational cash flow of $4.6 billion and adjusted free cash flow of $3.8 billion, with a productivity of 92%. P&G also actively returned capital to shareholders through $2.2 billion in dividends and $2.8 billion in share repurchases during the quarter. Management highlighted growth across most segments, particularly in Health Care and Fabric & Home Care, though Baby, Feminine & Family Care experienced a slight decline in net sales and earnings. The company continues to navigate global economic volatility and cost pressures while focusing on innovation and market share gains.

Financial Highlights

52 data points
Beta

Revenue

$20.34B

49.0% Gross Margin

Net Income

$4.11B

20.2% Net Margin

EPS (Diluted)

$1.61

Total Assets

$119.67B

Cash & Equivalents

$10.37B

Free Cash Flow

$3.55B

Financial Statements
Beta
Revenue$20.34B
Cost of Revenue$10.37B
Gross Profit$9.97B
SG&A Expenses$4.95B
Operating Income$5.02B
Interest Expense$109.00M
Net Income$4.11B
EPS (Basic)$1.66
EPS (Diluted)$1.61
Shares Outstanding (Basic)2.43B
Shares Outstanding (Diluted)2.56B

Key Highlights

  • 1Net sales increased by 5% to $20.3 billion, with organic sales up 4%, indicating underlying demand growth across key categories.
  • 2Diluted EPS decreased slightly by 1% to $1.61, impacted by a decline in operating margin despite higher net sales.
  • 3Gross margin compressed by 370 basis points due to significant increases in commodity costs (350 bps) and unfavorable mix (80 bps).
  • 4Operating cash flow was robust at $4.6 billion, and adjusted free cash flow was $3.8 billion with 92% productivity.
  • 5The company returned $5.0 billion to shareholders through dividends ($2.2 billion) and share repurchases ($2.8 billion).
  • 6Segment performance was mixed: Health Care and Fabric & Home Care showed sales growth, while Baby, Feminine & Family Care experienced a decline in sales and earnings.
  • 7Goodwill decreased by $431 million primarily due to currency translation effects.

Frequently Asked Questions

Net sales increased by 5% to $20.3 billion, driven by a 2% increase in unit volume, 1% from higher pricing, 1% from favorable mix (particularly in North America and premium products), and 1% from favorable foreign exchange. However, net earnings attributable to Procter & Gamble decreased by 4% to $4.1 billion. This was primarily due to a decline in operating margin, which was negatively impacted by a 370 basis point decrease in gross margin. The gross margin compression was largely attributable to a 350 basis point increase in commodity costs and an 80 basis point decline from unfavorable mix, partially offset by pricing actions and productivity savings.

P&G is facing significant cost pressures, especially from commodities and transportation. The company is attempting to mitigate these through a combination of strategies. These include increased pricing (which contributed 1% to net sales growth), net manufacturing productivity savings (30 basis points to gross margin), and favorable foreign exchange impacts (20 basis points to gross margin). However, the impact of increased commodity costs and unfavorable mix significantly outweighed these mitigating factors in the current quarter, leading to a decrease in gross margin.

The report shows mixed performance across segments. Health Care and Fabric & Home Care experienced sales growth, with Health Care seeing a strong 8% increase. Beauty and Grooming also saw moderate sales growth. However, the Baby, Feminine & Family Care segment reported a 3% increase in net sales but an 18% decrease in net earnings, indicating margin pressures within that segment. The company also noted a decrease in goodwill primarily due to currency translation, and flagged the Shave Care reporting unit and Gillette intangible asset as being susceptible to future impairment risk, though no impairment was recorded in this period.

Procter & Gamble continues to prioritize returning capital to shareholders. In the first quarter of fiscal year 2022, the company paid $2.2 billion in dividends to shareholders and repurchased $2.8 billion worth of its own stock. The company also announced plans to reduce outstanding shares through direct share repurchases valued between $7 to $9 billion in fiscal year 2022.