Investors have some good reasons to be optimistic heading into Procter & Gamble's (NYSE:PG) fiscal fourth-quarter earnings report. The consumer staples giant had been posting impressive growth results even before the COVID-19 pandemic put a premium on home care and cleaning supplies likes detergents and paper towels. That expansion pace hit a higher gear at the start of stay-at-home lockdowns in late March.
P&G's July 30 report will show how its business fared in those disrupted shopping months of April, May, and June. But investors will be just as focused on management's outlook for the new fiscal year.
With that bigger picture in mind, let's look at a few metrics to watch when P&G closes out its fiscal 2020.
Market share update
Most investors who follow the stock are expecting to see robust sales growth that's driven by P&G's dominant market position in core categories like laundry care, baby care, and cleaning supplies. Yet there's a wide range of potential results it could post, given economic growth struggles in key markets around Europe, Asia, and Latin America.
It's most likely that P&G will reveal a slowdown from last quarter's record 10% spike as panic buying eased. Investors will be pleasantly surprised if its expansion pace allows it to edge past the 4.5% target management issued for the full year back in mid-April.
On the other hand, the stock might decline if P&G trails its peer Kimberly-Clark (NYSE:KMB) in the market share department. Kimberly-Clark said last week that it is winning business in the U.S., where organic sales jumped 12% recently.
P&G's global supply chain shined during the early days of the pandemic, easily handling a 22% spike in production needs in the U.S. That success points to some potentially strong financial results from the company this week.
The key metric to watch will be operating margin, which expanded by a full percentage point last quarter. Keep an eye on cash flow, too, as that figure is the best indicator of P&G's ability to fund growth initiatives while continuing to deliver more cash to shareholders through dividends and stock buybacks. For context, Kimberly-Clark just notched its best-ever result of $1.6 billion of operating cash flow.
Looking out to 2021
Kimberly-Clark last week reinstated its growth outlook and boosted it to predict gains of between 4% and 5% for fiscal 2020. P&G will be issuing an outlook that covers a different period, looking 12 months out rather than six. But comparing the two forecasts will still be helpful for investors to judge the relative market share performance of these two consumer staples giants.
Reading between the lines, CFO Jon Moeller made some bold predictions in the early days of the pandemic that suggested P&G might see a sustainable uptick in demand as consumers settle into a new normal that involves more time spent working and entertaining at home. We'll learn on Thursday whether the management team is standing by that optimistic market reading.
But investors will be looking for more than just tone when they evaluate the company's growth prospects. They'll also be watching for management to back those comments up with a sales forecast that compares well against the expected 5% gain P&G has seen over the last year.