Image source: Getty Images.
No business is too large or too widely followed to surprise investors from time to time. Procter & Gamble (PG +1.61%), the $240 billion consumer goods giant, jumped higher this week after posting strong revenue growth to kick off its new fiscal year. Organic sales improved by 3% to mark the company's best result on that metric in over two years.
After the earnings announcement, CFO Jon Moeller held a conference call with analysts to chat about the market-moving results. Here are some key investor takeaways from that discussion.
Building momentum
Organic sales grew in each region and in nine of the 10 largest markets.
P&G managed several important wins this quarter. Growth improved overall to a 3% pace from 2% last quarter and 1% in the previous quarter. Those gains were broad based, as they included improvements across all markets and every product category. The U.S. was an especially strong geography at 3% growth. The fabric care division, anchored by Tide detergent, turned in the best individual showing at 5% gain.
P&G didn't need to rely on price hikes to get those higher revenue results, either. It enjoyed strong volume growth even as rival Unilever saw its sales volumes turn lower.
Soft spots
We still have work remaining in some categories and markets to get our brands back to market levels of growth.
There were plenty of stumbles this quarter, though. P&G lost share in two of its largest categories, hair care and baby care. It also took a step backwards in China, Russia, and the U.K., which it described as a "challenging and highly promotional market."
The challenges aren't getting easier from here. Moeller said P&G is seeing geopolitical and economic volatility in areas like Egypt, Nigeria, Argentina, and the Philippines, all while competitors keep targeting its most profitable niches. P&G lost market share overall last year, and that trend could continue over the current fiscal year, even if the declines are slightly smaller.
The portfolio we want
This marks the completion of the most significant portfolio transformation in P&G's history.
With its multibillion-dollar sale of beauty brands to Coty, P&G effectively finished its portfolio redesign. The company now owns about 100 fewer franchises, and so should be much easier to manage.
Image source: P&G.
There should be significant financial payoffs from the transformation as well. The brands that are left are growing at about 1 percentage point faster and with profit margins that are 2 percentage points higher than the company average. P&G chose these because the company has structural advantages with them such as dominant market share and favorable relationships with retailers.
Cost savings
We're driving productivity improvement up-and-down the income statement, and across the balance sheet.
You might think that, after years of slicing billions of dollars out of its cost structure, P&G would have already picked all the low-hanging fruit in terms of shedding expenses. However, if anything, the company sees more opportunity ahead to boost productivity.
After saving $1.4 billion per year in cost of goods in each of the last five fiscal years, management believes it can save as much as $2 billion per year through fiscal 2021.
PG cost of goods sold (TTM) data by YCharts.
The funds are being plowed back into initiatives that support long-term growth, including research and development, marketing, and trial-building programs.
Cash is coming
Fiscal 2017 will be a year of significant value returned to share owners.
Thanks to its incredible cash efficiency, there's routinely plenty of money left over for investors even after executives make prudent investments in the business. This year, that math is kicked into overdrive, though, as the company raised billions of excess funds from its portfolio-shedding initiative.
Management plans to spend $7 billion on dividends and nearly $15 billion on stock buybacks. Put it all together and P&G will send $22 billion to shareholders this year. That's up dramatically from its recent $15 billion annual average and enough to qualify as one of the biggest capital return plans on the market.
