A month has gone by since the last earnings report for Procter & Gamble (PG). Shares have added about 0.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is P&G due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Procter & Gamble has reported second-quarter fiscal 2025 results, wherein sales and earnings surpassed the Zacks Consensus Estimate and improved year over year.
Procter & Gamble’s core earnings of $1.88 per share increased 2% from the year-ago quarter and beat the Zacks Consensus Estimate of $1.86. Currency-neutral core EPS rose 3% year over year.
The company has reported net sales of $21.9 billion, up 2% year over year. Sales beat the Zacks Consensus Estimate of $21.6 billion. The better-than-expected sales performance can be attributed to 1% growth each from volume and geographic mix. Meanwhile, pricing, currency and other impacts (related to sales mix impacts of acquisitions and divestitures, and rounding impacts to reconcile volume to net sales) were flat each in the reported quarter.
On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), revenues rose 3% year over year, backed by a 2% increase in the organic volume. Our model predicted year-over-year organic revenue growth of 2% for second-quarter fiscal 2025, with a 1.4% gain from pricing, 0.5% growth in the product mix, and a 0.1% rise in the organic volume.
The company’s net sales growth for the fiscal second quarter was led by a year-over-year improvement of 3% in the Baby, Feminine & Family Care segment, followed by 2% gains each for the Health Care, and the Fabric & Home Care segments. Meanwhile, net sales improved 1% in the Grooming segment and were flat for the Beauty segment.
Taking a Look at Procter & Gamble's Q2 Margins
In the fiscal second quarter, the core and reported gross margin declined 30 basis points (bps) year over year to 52.4%. Currency rates hurt the gross margin by 0.1%. The currency-neutral gross margin contracted 20 bps to 52.5%. The decline in the gross margin was led by 110 bps of unfavorable mix, 50 bps of negative commodity costs, and 40 bps of impacts of product reinvestment and transportation service costs. This was partly negated by 30 bps of pricing gains and a 150-bps benefit of gross productivity savings.
Core selling, general and administrative expenses (SG&A), as a percentage of sales, increased 50 bps from the year-ago quarter to 26.2%, while the currency-neutral SG&A rate rose 30 bps to 26%. The increase in the currency-neutral SG&A rate was driven by 210 bps of reinvestments, offset by 110 bps of productivity savings, 60 bps of leverage from net sales growth and 10 bps of other savings.
The core operating margin contracted 80 bps from the prior year to 26.2%. On a currency-neutral basis, the operating margin contracted year over year by 50 bps to 26.5%. The operating margin included gross productivity savings of 260 bps.
Peek Into PG's Financials
Procter & Gamble ended second-quarter fiscal 2025 with cash and cash equivalents of $10.2 billion, long-term debt of $25.3 billion, and total shareholders’ equity of $51.4 billion.
The company generated an operating cash flow of $4.8 billion and an adjusted free cash flow of $3.9 billion for the three months ended Dec. 31, 2024. The adjusted free cash flow productivity was 84% at the end of second-quarter fiscal 2025.
Procter & Gamble returned more than $4.9 billion in cash to its shareholders in second-quarter fiscal 2025. This included $2.4 billion in dividend payouts and $2.5 billion in share buybacks.
PG's FY25 Guidance
Management retained its view for fiscal 2025. The company anticipates year-over-year all-in sales growth of 2-4% for fiscal 2025. Organic sales are likely to increase 3-5% in fiscal 2025. Currency headwinds and divestitures are expected to negatively impact all-in sales growth by 1%.
Procter & Gamble expects the fiscal 2025 GAAP EPS to increase 10-12% from the $6.02 reported in fiscal 2024. Core EPS is expected to rise 5-7% year over year from a core EPS of $6.59 reported in fiscal 2024. The core EPS guidance growth guidance suggests an EPS range of $6.91-$7.05, with the mid-point at $6.98. At the mid-point, the company expects core EPS to increase 6% year over year.
The EPS view for fiscal 2025 includes an after-tax headwind of $200 million related to unfavorable commodity costs. The company anticipates unfavorable foreign exchange rates to create an after-tax headwind of $300 million. The unfavorable commodity costs and currency rates are expected to impact the core EPS by 20 cents per share.
Procter & Gamble projects a core effective tax rate of 20-21% for fiscal 2025. It expects the capital expenditure to be 4-5% of net sales in fiscal 2025. The adjusted free cash flow productivity is estimated to be 90% for fiscal 2025. The company intends to pay dividends worth $10 billion in fiscal 2025, with share repurchases of $6-$7 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
Currently, P&G has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, P&G has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
P&G belongs to the Zacks Consumer Products - Staples industry. Another stock from the same industry, Albertsons Companies, Inc. (ACI), has gained 3.9% over the past month. More than a month has passed since the company reported results for the quarter ended November 2024.
Albertsons Companies reported revenues of $18.77 billion in the last reported quarter, representing a year-over-year change of +1.2%. EPS of $0.71 for the same period compares with $0.79 a year ago.
Albertsons Companies is expected to post earnings of $0.40 per share for the current quarter, representing a year-over-year change of -25.9%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
Albertsons Companies has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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