Investors were cautiously optimistic heading into Procter & Gamble's (NYSE:PG) fiscal fourth-quarter earnings report. The consumer products titan had announced surprisingly strong sales growth in each of the last three quarters, after all, and was due for another strong showing as shoppers continued prioritizing home maintenance and cleaning supplies through the COVID-19 pandemic.
That investor optimism was tempered by expectations for slower growth due to reduced panic-buying. An impressive report from Kimberly-Clark (NYSE:KMB) last week also suggested P&G might be losing market share in a few key niches like diapers.
The company's earnings release confirmed these mixed operating trends, which convinced management to issue a conservative outlook for the new fiscal year ahead.
Another sales beat
P&G's organic sales grew 6% in Q4 to mark a slowdown from the prior quarter's 10% spike. Yet there was plenty for investors to like about that core expansion metric.
It surpassed the 4% boost that Kimberly-Clark announced a week earlier, for one. The growth was faster than executives had forecast, too, which put P&G above the high end of the range it had predicted for the full year. Meanwhile, the sales gains came from a healthy mix of higher volumes and increased prices. "We delivered strong, balanced sales and profit results in fiscal 2020," CEO David Taylor summarized in a press release.
The growth didn't reach all areas of P&G's business. While its fabric and home care segment soared higher by 14%, its grooming division took a small step backward as consumers scaled back on those products in an era of reduced in-person interactions. The company also noted challenges in oral care due to temporary closures of dentist offices.
P&G managed a modest boost in gross profit margin as the company cut selling expenses and benefited from falling commodity costs. These positive trends allowed it to ramp up marketing investments while still boosting bottom-line profitability. Operating margin rose by nearly 2 full percentage points after adjusting for currency exchange moves.
Operating cash flow landed at $4.8 billion for the quarter, which pushed the full-year result to $17.4 billion. P&G delivered $15.2 billion of those funds right back to shareholders, about evenly split between dividends and stock buybacks.
A soft landing
Taylor and his team promised to send about as much cash to investors in fiscal 2021, with dividends reaching about $8 billion and stock repurchases ranging from $6 billion to $8 billion. The growth outlook implies a tougher year ahead, though, with organic sales landing between 2% and 4% compared with this past year's 6%.
Investors might find that forecast underwhelming considering P&G had been growing at about 5% before the pandemic hit. Kimberly-Clark is predicting faster growth, too, of between 4% and 5% through the second half of calendar 2020.
P&G's cautious outlook suggests that while the business is seeing a sustained uptick in demand for core niches like laundry care and cleaning supplies, there are also increased competitive pressures and weaker economic trends to worry about. Together, these factors point to a tougher year ahead for the consumer staples business.