01—Abstract
Summary
Summary of the 10-Q filed January 23, 2024. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble's (PG) fiscal second quarter 2024 report reveals a 3% increase in net sales to $21.4 billiona, driven by a 4% increase in pricing, partially offset by a 1% unfavorable foreign exchange impact.
While overall net sales grew, diluted earnings per share (EPS) saw a 12% decrease to $1.40b, primarily impacted by a significant $1.3 billion (pre-tax) impairment charge on the Gillette intangible asset. However, the company reported strong operational performance, with gross margin improving by 520 basis points due to manufacturing productivity, lower commodity costs, and higher pricing. Furthermore, Core EPS, which excludes the impairment charge and incremental restructuring costs, increased by a robust 16% to $1.84, highlighting the underlying strength of the business.
For the first six months of the fiscal year, net sales increased by 5% to $43.3 billionc, and net earnings rose by 2% to $8.0 billion. Core EPS for the six-month period surged by 16% to $3.66.
The company also demonstrated strong cash flow generation, with operating cash flow at $10.0 billiond and adjusted free cash flow at $8.7 billion for the first half of the fiscal year, resulting in an impressive adjusted free cash flow productivity of 96%. The company continues its share repurchase program, returning capital to shareholders.
02—Key points
Key Highlights
- Net sales increased by 3% to $21.4 billion for the quarter, driven by a 4% price increase, though unit volume was flat.
- Diluted EPS decreased by 12% to $1.40 due to a significant $1.3 billion pre-tax impairment charge on the Gillette intangible asset.
- Core EPS (excluding impairment and restructuring charges) increased by 16% to $1.84 for the quarter, indicating underlying business strength.
- Gross margin improved by 520 basis points to 52.7% driven by manufacturing productivity, lower commodity costs, and higher pricing.
- For the six months ended December 31, 2023, net sales increased 5% to $43.3 billion and net earnings increased 2% to $8.0 billion.
- Operating cash flow for the six months was $10.0 billion, with adjusted free cash flow at $8.7 billion and productivity at 96%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Procter & Gamble Co kept $0.16.
- Revenue$21.44B100.0%
- Cost of revenue−$10.14B47.3%
- Gross profit$11.30B52.7%
- Operating costs−$6.86B32.0%
- Operating income$4.43B20.7%
- Interest, other & tax−$965.0M4.5%
- Net income$3.47B16.2%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed January 23, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $21.44B$20.77B | +3.2% |
| Cost of Revenue | $10.14B$10.90B | −6.9% |
| Gross Profit | $11.30B$9.88B | +14.4% |
| SG&A Expenses | $5.52B$5.09B | +8.5% |
| Operating Income | $4.43B$4.79B | −7.4% |
| Interest Expense | $248.00M$171.00M | +45.0% |
| Net Income | $3.47B$3.93B | −11.8% |
| EPS (Basic) | $1.44$1.63 | −11.7% |
| EPS (Diluted) | $1.40$1.59 | −11.9% |
| Shares Outstanding (Basic) | 2.36B2.37B | −0.3% |
| Shares Outstanding (Diluted) | 2.47B2.48B | −0.5% |
05—Questions
Frequently Asked Questions
What caused the significant decrease in net earnings and diluted EPS this quarter?
The primary driver for the decrease in net earnings and diluted EPS was a $1.3 billion pre-tax (approximately $1.0 billion after-tax) non-cash impairment charge recorded on the Gillette indefinite-lived intangible asset. This charge arose due to a higher discount rate, weakening currencies, and the impact of a new restructuring program in certain markets.
How is the underlying business performing, considering the impairment charge?
The underlying business performance remains strong, as evidenced by the 16% increase in Core EPS to $1.84 for the quarter and $3.66 for the six-month period. Core EPS excludes the impact of the Gillette intangible asset impairment and incremental restructuring charges, providing a clearer view of operational performance.
What are the key drivers of the improvement in gross margin?
The gross margin improved significantly by 520 basis points due to a combination of factors: 240 basis points from manufacturing productivity savings, 200 basis points from lower commodity costs, and 190 basis points from higher pricing. These improvements were partially offset by unfavorable foreign exchange and product/packaging investments.
How is Procter & Gamble managing its cash flow and returning capital to shareholders?
The company generated strong operating cash flow of $10.0 billion and adjusted free cash flow of $8.7 billion for the first six months of fiscal year 2024, with productivity at 96%. The company continues to return capital to shareholders through dividends and its ongoing share repurchase program, with plans to repurchase $5 to $6 billion in fiscal year 2024.
06—Continue