Investors were cautiously optimistic heading into Procter & Gamble's (NYSE:PG) fiscal second-quarter report. The wider consumer staples industry is facing big challenges including sluggish growth and spiking costs. On the bright side, though, P&G overcame those issues last quarter to post some of its strongest market share results in several years.

The company on Wednesday revealed that it extended that positive momentum into 2019 and management responded by raising their fiscal year growth outlook.

More on that brightening forecast in a moment. First, here's how the headline numbers stacked up against the prior year:

Metric

Q2 2019

Q2 2019

Growth (YOY)

Revenue

$17.4 billion

$17.4 billion

N/A

Net income

$3.2 billion

$2.6 billion

26%

Earnings per share

$1.22

$0.93

28%

Data source: P&G's financial filings. 

Protecting momentum

Net sales were flat, but only because of foreign currency exchange shifts. Looking at organic sales, P&G's expansion pace held steady at a market-thumping rate even as it increased prices across its portfolio. Those two trends combined to deliver significant profit growth. 

Woman in grocery aisle considering two cleaning products

Image source: Getty Images.

The key highlights of the quarter:

  • Organic sales rose 4% to stay even with last quarter's impressive result. P&G likely gained market share, given that rival Kimberly-Clark (NYSE:KMB) expanded sales at a weaker 3% pace for the period.
  • The sales growth was broad-based and included rising prices and higher volume while Kimberly-Clark had to rely on higher prices for all of its growth. P&G's beauty and fabric care segments stood out with robust gains, while the grooming segment, home to the Gillette franchise, was its only division to contract in the period. Across the portfolio, volume was up 2% and prices rose 1%.
  • Gross profit margin fell by a full percentage point but was essentially flat on a currency-neutral basis as price increases offset rising commodity costs. Selling expenses fell, which helped operating profit margin hold steady at 22% of sales.
  • P&G's tax rate dove to 18% from 37%, helping lift earnings to $3.2 billion, or 18% of sales, from $2.5 billion, or 15% of sales, a year ago.
  • The company generated $4 billion of operating cash flow and returned $2.6 billion to investors, mainly through dividend payments.

What management had to say

"We delivered strong organic sales in the second quarter," CEO David Taylor said in a press release, "building on our first quarter momentum." Just like Kimberly-Clark's management did in its own quarterly report, executives referenced a challenging competitive and economic environment in many key markets. P&G's "focus on superiority, productivity, and improving [the] organization and culture is delivering improved results" despite those challenges, management said.

Looking forward

Taylor and his team backed up those positive words by lifting the company's sales outlook. P&G now sees organic revenue improving by between 2% and 4% rather than the 2% to 3% range it had predicted over the past six months. Kimberly-Clark's updated outlook calls for a more modest 2% uptick in the year ahead.

P&G raised its outlook one other time in the past few years, and the company had to quickly walk that forecast back after demand trends deteriorated. Yet the company's sales, profit, and market share metrics appear much stronger this time around, and so investors have good reasons to be more confident that this forecast for accelerating sales growth will finally stick.

Check out the latest Procter & Gamble earnings call transcript.