Procter & Gamble (NYSE:PG) reported fiscal 2017 first-quarter results on Oct. 25. The owner of brands such as Gillette razors and Crest toothpaste enjoyed a rebound in sales growth, as well as solid profit and cash flow generation.
What happened with Procter & Gamble this quarter?
Organic sales -- which exclude the impact of foreign exchange, acquisitions, and divestitures -- rose 3%. The growth was broad-based, with organic sales increasing in all five of P&G's business segments. And, importantly, P&G's sales growth was driven mostly by higher shipment volumes, rather than price increases, which signifies increasing demand for P&G's products.
Foreign currency movements did, however, weigh on Procter & Gamble's results. These currency fluctuations reduced sales by 3 percentage points, which is why P&G's reported revenue was essentially flat year over year at $16.5 billion.
Profitability also continues to improve. On a currency-neutral basis, "core" (a measure that adjusts for restructuring and other non-recurring charges) gross margin and operating profit margin increased 130 basis points and 120 basis points, respectively, mainly due to productivity cost savings. That helped constant-currency core earnings per share, which rose 12% to $1.10.
"Our first quarter results mark a good start to the fiscal year," said Chairman and CEO David Taylor in a press release. "We delivered broad-based organic sales growth improvement across product categories and markets, as well as strong cost savings."
Cash flow and capital returns
Importantly, Procter & Gamble's cash flow generation remains strong, with first-quarter operating cash flow exceeding $3 billion and free cash flow surpassing $2.3 billion. The company remains committed to passing this cash on to shareholders, as demonstrated by the $1 billion of share repurchases and $1.9 billion in dividend payments that P&G conducted during the quarter.
Procter & Gamble reiterated its full-year fiscal 2017 guidance, including all-in sales growth of approximately 1%. Organic sales are still expected to increase 2%, with foreign exchange and minor-brand divestitures projected to reduce sales by 1%.
Procter & Gamble also maintained its outlook for "mid-single digits" core earnings-per-share growth, compared to fiscal 2016 core EPS, of $3.67.
"Earlier this month, we completed the last major step in P&G's portfolio transformation with the Beauty Brands divestiture to Coty Inc.," added Taylor. "We are now focusing all our efforts on 10 large, structurally attractive categories where P&G holds leading positions. We're pleased with the progress we're making, but there is still more work to do to get back to the levels of balanced top- and bottom-line growth and cash generation that will consistently put P&G shareholder value creation among the best in our industry."
That top-line growth will be vital if Procter & Gamble is to deliver market-beating returns to investors going forward, as cost-cutting can only go so far. Management's commitment to funneling cost savings into increased marketing and innovation-focused investments should help in that regard, as should P&G's more streamlined brand and organizational structure. Still, sales growth will remain an uphill challenge for P&G due to tepid global growth in the packaged consumer goods industry as a whole, as well as increasing competition, particularly in the e-commerce space. As such, Procter & Gamble, with its 3% dividend yield, is likely a better choice for those seeking a relatively stable income-producing investment, rather than for those looking for growth.