Investors found plenty to like in Procter & Gamble's (NYSE:PG) latest earnings report. Sure, sales growth slackened to its weakest pace in a while as the company began comparing its revenues to the period of 2020 when demand surged as shoppers stocked up for the first lockdowns of the pandemic. But the consumer goods giant is also enjoying strong profitability and soaring cash flow, and management intends to share more of those profits with stockholders.
In a conference call with Wall Street analysts, executives explained why they just raised the company's return plans, and why they think growth might remain elevated well after the major threat of the coronavirus fades. Here are some highlights from that call.
1. The big picture is positive
"Organic sales were up 4% on the quarter, up 10% [on a] two year...[basis]." -- COO Jon Moeller
In the company's fiscal 2021 third quarter, which ended March 31, core sales gains landed at just 4% year over year -- half the rate that P&G notched in the prior quarter. That's not a sign of a struggling business, though. Sales were up by a double-digit percentage on a two-year basis and market share ticked up again thanks to strong results in categories like beauty, home maintenance, and fabric care.
P&G called that a success considering the challenges in the quarter, including new economic shutdowns in some countries, shipping bottlenecks, and an unusually mild cold and flu season.
"The March quarter was another period of good top-line, bottom-line, and market share growth," CFO Andre Schulten summarized.
2. Cash is surging
"We're increasing estimates for the third time for free cash flow productivity and cash returned to share owners." -- Moeller
P&G was able to pass along higher input costs to shoppers in most cases, and its margins rose due to cost-cutting and a continued shift in demand toward its more-premium products. Income rose 10% year over year.
Executives are clear about their aims to return most of that haul to shareholders after making key investments to the business. After hiking the dividend by 10%, P&G this week raised its stock buyback target for the second straight quarter. Altogether, management plans to return $19 billion to investors this fiscal year -- $3 billion more than its initial estimate.
3. A soft landing ahead
"As we stand today, our internal estimates for organic sales growth are above the midpoint of the fiscal year guidance range. On the bottom line, we're trending toward the midpoint of the core EPS range." -- Schulten
P&G is forecasting a slow deceleration into its 2022 fiscal year, with sales gains likely to land near 6% compared to the average 7% increase it has delivered over the past three quarters. The next fiscal year will bring challenges, such as rising costs and weaker demand than in the summer and autumn of 2020.
But P&G is on firm footing when it comes to market share, and the innovative products it has launched across the beauty, fabric care, grooming, and home care divisions are resonating with consumers.
These wins have management thinking the year-over-year expansion rate might settle down at a level higher than the 6% that company was enjoying before the pandemic. Those gains should be amplified by higher margins and robust cash flow, which all paints a bright picture for long-term holders of this Dividend King.