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Procter & Gamble Earnings: 3 Trends to Watch

By Demitri Kalogeropoulos – Oct 15, 2021 at 9:15AM

Key Points

  • Watch market share trends for signs of continued dominance in niches like home cleaning.
  • Profitability might trend lower over the next year despite cost cuts.
  • The 2022 growth outlook is likely to be modest.

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P&G announces its results, as well as a new financial outlook, on Tuesday.

Procter & Gamble (PG 0.31%) investors might be in for a treat in a few days. The consumer products titan is set to announce earnings results on Tuesday, Oct. 19, in a report that should contain plenty of good news for shareholders.

Sure, sales growth is slowing when compared to the pantry-stocking early days of the pandemic. But P&G is still likely to reveal solid operating trends and gushing cash returns to its investors this week.

Let's take a closer look.

A person applies skin cream to their face while looking in a mirror.

Image source: Getty Images.

Market share

P&G stock hasn't kept up with the broader market rally since the pandemic started, but that's not due to significant growth challenges. While organic sales gains slowed to 4% in the previous quarter, the company continued to win market share against peers like Kimberly-Clark (NYSE: KMB). Its business is much larger today than it was two years ago, too. "Growth was broad-based across business units," CFO Andre Schulten said in a conference call back in mid-August.

Look for P&G to extend that market share momentum into the start of its fiscal 2022. Executives said each of its 10 core product categories either held or extended their hold on key niches including fabric care, skin care, and over-the-counter medicine. The company will update those big-picture growth trends on Tuesday.

Pricing challenges

Investors are worried about whether P&G will take a big profitability hit from soaring costs in today's inflation-heavy selling environment. Supply chain issues did combine with rising input costs to pressure earnings, after all. Those challenges might cleave nearly $2 billion from earnings in the new fiscal year.

It's possible that this profit headwind got even worse in the weeks that have passed since mid-August, so look for P&G to potentially raise its inflation estimate on Tuesday. Ideally, the company can offset most of the pressure through cost cuts and by increasing its own prices. P&G's innovation and lower expense profile gives it a better shot at protecting earnings than most of its industry peers.

A refreshed 2022 outlook

Heading into the report, CEO David Taylor and his team forecasted that organic sales will rise by between 2% and 4% this year to mark only a modest slowdown compared to the 7% spike in 2020. Depending on where the company lands on that metric, executives may issue a bullish -- or conservative -- outlook for the new year ahead.

On the downside, P&G will face difficult comparisons after two years of robust demand growth across staple categories like laundry and home cleaning. It will have to balance the priority of volume growth against the need for higher prices, too.

Yet the good news is that P&G is likely to outpace the industry across the board, including on key metrics like growth, profitability, efficiency, and cash flow. Those gains should support rising cash returns to shareholders through dividends and stock buybacks. And that means investors should see solid returns compared to the wider market, even if P&G's fiscal 2022 brings unusually weak sales and earnings results.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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