Just three months into its fiscal 2021 year, and Procter & Gamble (NYSE:PG) is already raising its outlook. The consumer staples giant just announced accelerating sales growth and improving profitability, which combined with stock repurchase spending to push core earnings per share higher by 22%.

Those operating trends convinced CEO David Taylor and his team to change their tone on the new year in a break from their cautious outlook in late July.

Let's dive right in.

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Balanced growth

The headline sales growth number was impressive, with organic sales gains accelerating to 9% from 6% last quarter. P&G had telegraphed a tougher start to the year, with pressure coming from increased competition from rivals like Kimberly Clark (NYSE:KMB), and from a reversal of consumer pantry-stocking behavior from early COVID-19 spikes.

Yet people continued spending freely for essentials like home cleaning supplies, laundry care products, and health and wellness solutions over the last three months. "We delivered another strong quarter of organic sales growth," Taylor said in a press release.

Looking beyond the top-line result, growth was balanced across each of P&G's main categories, even though the baby care segment struggled. Overall, P&G's gains were powered by a good balance between higher volume (at 7%), a tilt toward new product release (1%), and increased prices (1%).

Margins are rising

Management said consumers are gravitating toward premium products and innovations like Tide Pods and fabric enhancer beads. These shifts helped push gross profit margin up by nearly 2 full percentage points. P&G also managed to reduce its expense burden, and together these positive trends led to a 3 percentage-point increase in operating profit margin.

The efficiency gains were amplified by a declining share count, leading to a 22% spike in core earnings per share.

P&G used some of this windfall to retire debt that it had taken on during the early days of the pandemic. That payback will cause a temporary reduction in short-term earnings, management said, but the broader outlook is positive across key metrics including growth, profits, and cash returns.

A better year ahead

In fact, sales are now expected to rise by 4% to 5%, up from the prior 2% to 4% range P&G issued back in late July. Management also raised its stock repurchase prediction to call for spending between $7 billion and $9 billion, up from the prior $6 billion to $8 billion range. That update means the company will likely return about $16 billion to investors in fiscal 2021 through dividends and buybacks, compared to $15.2 billion last year and $12.5 billion in fiscal 2019.

Shareholders are used to receiving lots of cash from P&G, but the difference in the last two years is that these returns are coming in the context of robust sales growth and expanding profit margins. Those positive trends had started before the COVID-19 pandemic, and they appear set to continue even after the peak pantry-stuffing demand spike that lifted sales volumes for consumer essentials in March, April, and May.

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