Investors were bracing for some disappointing news from Procter & Gamble (PG 0.29%) when the consumer products titan closed out its fiscal 2019. CEO David Taylor and his team had hinted at a conservative outlook for the coming year, in part because of aggressive competitive responses to its newfound market-share momentum.
However, while rivals like Kimberly-Clark (KMB 0.49%) did step up their attacks in recent months, P&G managed a surprising acceleration in sales growth to end its fiscal year. That performance sets it up for an even stronger fiscal 2020.
Let's take a closer look.
Sales trends continue to improve beyond anything that P&G shareholders have seen since the company began its portfolio transformation process in 2012. Organic sales gains shot up to 7%, in fact, to mark its strongest quarter in over a decade. That boost put growth at 5% for the full year, or significantly above the upgraded outlook that executives issued just three months ago.
A few other metrics support management's bullish reading on P&G's market-share impetus. Organic growth came from a healthy mix of rising sales volumes and higher prices, for one. P&G also outpaced Kimberly-Clark, whose Huggies diapers compete with its leading Pampers brand. Kimberly Clark's 5% uptick was both smaller than P&G's and came entirely from rising prices as its sales volume shrank.
Extending the profit lead
Several unusual factors contributed to a sharp profit decline, with reported operating income falling to a $5.2 billion loss, compared to a $2.6 billion gain in the prior year. Strip out the impact of a large goodwill charge this quarter, though, and P&G's earnings power improved significantly at the close of fiscal 2019.
Gross profit margin jumped by over a full percentage point thanks to the combination of higher pricing and falling commodity costs. Savings from P&G's cost-cutting program helped, too, so that operating profit margin improved to 19.6% of sales from 18.3% a year ago. Executives said profitability would have surpassed 20% of sales if it hadn't been for the negative impact of foreign currency exchange shifts. Kimberly-Clark's comparable figure hovers around 15% of sales.
Looking ahead to 2020
Management's comments reflected the confidence they've gained after boosting P&G's outlook for three consecutive quarters. "We met or exceeded each of our going-in core targets for sales, profit and cash in fiscal 2019," Taylor said in a press release. "We built sales, market share and profit margin momentum throughout the year, ending with our strongest quarter ... in well over a decade."
That broad-based success convinced executives to issue a bold forecast for 2020 rather than the conservative one they hinted at back in late April. Taylor and his team are calling for sales gains to land between 3% and 4%, implying just a slight slowdown from 2019's banner 5% increase. Profits will rise at a faster pace of between 4% to 9%, they estimate.
The company faces some challenges ahead, including getting its struggling shave-care business back on track and dealing with more competition in the baby-care niche. Still, its momentum is on the upswing, and another quarter or two of positive results could set P&G up for its third straight year of accelerating sales growth.