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Procter & Gamble: Strong Performance May Outlast COVID-19

By Daniel Sparks – Oct 29, 2020 at 12:18PM

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The acceleration in this consumer goods giant's business could last longer than you think.

Procter & Gamble (PG 0.28%) easily beat analysts' estimates when it reported fiscal first-quarter results last week. Total revenue rose 9% year over year to $19.32 billion, coming in nearly $1 billion ahead of analysts' average forecast. Earnings per share of $1.63 was ahead of a consensus estimate for $1.42.

While COVID-19 has unsurprisingly been a boon to the demand for some of the company's staple items, P&G's CFO thinks there could be a lasting impact from the coronavirus that helps lift sales beyond the pandemic.

The Wrap host Jason Hall from Motley Fool Live and senior technology specialist Daniel Sparks take a closer look at P&G's quarter in this video.

This video was recorded on Oct. 20, 2020.

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Jason Hall: I don't know what the exact statistic is, but I remember seeing it. It's something like 90% of American homes have at least one Procter & Gamble product in a cabinet somewhere, right?

Daniel Sparks: Oh, yeah. It has to be insane. If you just Google Procter & Gamble brands and click on pictures, look at the brand names, it's all over the place. Anyway, so obviously, going into the report, we expect sales are going to be doing well, and they're going to be healthy. These are products that we're using a lot more of than we were before coronavirus on average. You can walk through the aisles and stores like this, and still, to this day, I don't know if that's where you're at, but I'll walk through major grocery stores, walk through the aisles and see a lot of things missing and just still really low inventory. 

So yeah. Expectations were high, but I would say they delivered. Organic revenue was at 9% year over year during the quarter. Sure, this may be a boring brand, but it's interesting to note that organically, across every segment, sales were up year over year.

Then they just started fiscal 2021. Investors are looking for a lot of forward statements. The quarter they closed was Q1 fiscal 2021. They did boost their guidance significantly for Procter & Gamble. Let's readjust from Intuitive Surgical still, but for them significantly is going from a forecast for 1% to 3% for the full year to 3% to 4% for the full year. That was some good news. It really shows how well their business is doing now.

What was interesting to me was the CFO talked about that the habits he's seen; a lot of them are looking more permanent. People have revisited these brands, re-evaluated what's important to them. The CFO said during the earnings call that he is seeing evidence that a lot of these habits are going to outlast COVID-19. Maybe that means only a year or two. But still, it just shows the resiliency of these brand names to really stand out, and Procter & Gamble's experts, with their marketing, they're always able to consistently create shareholder value.

Speaking of shareholder value, still returning tons of cash to shareholders. During the quarter, they returned $4 billion to shareholders. Half of that was dividends; half of it was repurchases. Since it was the beginning of the fiscal year, P&G also let investors know how much they plan to return to investors this year -- $15 billion to $17 billion. They were previously looking to return $6 billion to $8 billion through share repurchases. Now, they're looking to return $7 billion to $9 billion. Of course, 2%-plus dividend on the stock. Just a very high-quality name. Loved to see this old stalwart doing well.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Intuitive Surgical and recommends the following options: long January 2022 $580 calls on Intuitive Surgical and short January 2022 $600 calls on Intuitive Surgical. The Motley Fool has a disclosure policy.

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