01—Abstract
Summary
Summary of the 8-K filed October 19, 2021. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble reported fiscal year 2022 first quarter results (quarter ended September 30, 2021) with net sales of $20.3 billiona, up 5% year over year, and organic sales up 4% (volume +2%, price +1%, mix +1%).
Diluted GAAP EPS was $1.61b, down 1%, and core EPS was also $1.61, down 1%. Profitability was pressured by sharply higher commodity and freight costs: gross margin fell 370 basis points to 49.0% and operating margin fell 260 basis points to 24.7%. Net earnings declined 4% to $4.1 billion, with the drop in earnings only partly offset by a 6% reduction in diluted share count (2,558.9 million vs. 2,625.3 million).
Cash generation and shareholder returns remained solid. Operating cash flow was $4.6 billionc and adjusted free cash flow productivity was 92%, above the company's 90% long-term target. P&G returned nearly $5 billion to shareholders through $2.2 billion in dividends and $2.75 billion in buybacks.
Cash rose modestly to $10.4 billiond, while short-term debt increased and total debt (current plus long-term) rose to about $32.5 billion from $32.0 billion at June 30, 2021. Management maintained fiscal 2022 guidance: all-in and organic sales growth of 2% to 4%, GAAP EPS growth of 6% to 9% (from $5.50), and core EPS growth of 3% to 6% (from $5.66). Management now expects approximately $2.3 billion after-tax of combined commodity and freight headwinds, equal to roughly a $0.90 per-share EPS headwind.
Foreign exchange is now expected to be neutral to sales and after-tax earnings, rather than a tailwind. The company also reiterated its core tax rate of 18% to 19%, capital spending of 4% to 5% of sales, and planned dividends above $8 billion with $7 billion to $9 billion in share repurchases.
02—Key points
Key Highlights
- Net sales rose 5% to $20.3 billion, with organic sales up 4%, led by a 2% volume gain and strength in Health Care (organic sales +7%) and Grooming (+4%).
- Diluted GAAP and core EPS were each $1.61, down 1%; currency-neutral EPS declined 3%.
- Gross margin contracted 370 basis points to 49.0% due to 350 basis points of commodity cost inflation, and operating margin fell 260 basis points to 24.7%.
- Commodity and freight cost pressures now total about $2.3 billion after-tax for FY2022, a $0.90 per-share headwind, while FY2022 sales and EPS guidance was maintained.
- Adjusted free cash flow productivity was 92% on $3.8 billion of adjusted free cash flow, above the 90% long-term target.
- Returned nearly $5 billion to shareholders in the quarter ($2.2 billion dividends, $2.75 billion buybacks); diluted share count fell about 2.5% year over year.
- Fabric & Home Care and Baby, Feminine & Family Care segment earnings declined 11% and 18%, respectively, reflecting cost pressures, while Grooming earnings rose 22%.
03—Questions
Frequently Asked Questions
Did P&G change its fiscal 2022 guidance in this release?
No. P&G maintained its outlook for all-in and organic sales growth of 2% to 4%, GAAP EPS growth of 6% to 9%, and core EPS growth of 3% to 6%. Foreign exchange is now expected to be neutral to sales growth rather than a tailwind, and the company flagged an approximately $2.3 billion after-tax commodity and freight headwind.
Why did profit margins decline so sharply?
Commodity costs were the main driver, contributing 350 basis points of gross margin pressure. Unfavorable product and pack-size mix (80 basis points) and higher transportation costs (50 basis points) added to the decline. Gross manufacturing productivity savings (100 basis points) and pricing (50 basis points) partially offset these effects. SG&A leverage helped hold operating margin decline to 260 basis points.
Is P&G generating enough cash to support its dividend and buybacks?
Yes, for this quarter. Operating cash flow was $4.6 billion and adjusted free cash flow was $3.8 billion, covering the roughly $2.2 billion in dividends and $2.75 billion in buybacks. Adjusted free cash flow productivity of 92% exceeded the company's 90% target. The company expects to pay over $8 billion in dividends and repurchase $7 billion to $9 billion of shares in fiscal 2022.
Which business segments performed best and worst?
Health Care led on sales growth, with organic sales up 7% and net sales up 8%. Grooming was strong on earnings, with earnings before taxes up 22%. Fabric & Home Care and Baby, Feminine & Family Care were weaker, with earnings before taxes down 11% and 18%, respectively, as cost pressures and promotional and mix headwinds weighed on profitability.
Is the GAAP vs. core EPS difference material this quarter?
No. Diluted GAAP EPS and core EPS were both $1.61 for the quarter, so no non-core items affected the comparison. Core EPS adjustments in the prior year related to early debt extinguishment charges of about $427 million after tax, which affects year-over-year growth comparisons for fiscal 2022 guidance rather than this quarter's results.
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