Procter & Gamble (PG 0.54%) recently announced fiscal second-quarter results that featured surprisingly strong sales growth tempered by just a modest pinch from soaring inflation. The owner of dozens of staple consumer brands, including Bounty and Tide, won market share even compared to booming results a year ago. Management raised its growth and cash flow outlook, while confirming their short-term earnings forecast.
Executives issued an investor presentation along with their conference call, and below we'll look at the key takeaways from that Q2 summary.
Image source: Getty Images.
1. Accelerating market share growth
Image source: P&G investor presentation.
P&G's 6% organic sales boost was better than most investors expected and came on top of an 8% surge a year ago. It also represented an acceleration compared to the 4% increase that the company had achieved in each of the last three quarters .
The news was even better on the market-share front, where P&G gained 0.6 percentage points of global market share across the portfolio. Management's favorite metric for following that growth is by tracking how many of its 50 top brand niches either held or expanded share. A full 37 brands have met that goal so far in fiscal 2022, which is a record high for the business .
2. Shrinking margins
Image source: P&G investor presentation.
P&G wasn't immune to the global inflation pressures, which threaten to pressure earnings by about $2.8 billion this fiscal year. Soaring costs offset the company's rising prices so that core operating margin felly by more than two percentage points.
Still, the company was able to boosts earnings for the first time in three quarters compared to soaring results a year earlier. Cost cuts are helping, and so is a flood of innovative product releases. Shoppers are eagerly paying up for more premium products in niches like fabric care, skin care, and grooming, and that trend is helping support P&G's market-leading earnings.
3. Soaring cash returns
B = Billion. Image source: P&G investor presentation.
Management raised their sales outlook. They affirmed the earnings forecast, too, even though inflation is now on track to cleave nearly $3 billion from profits.
P&G also hiked its cash flow target as executives now believe they can convert roughly 95% of 2022 earnings into free cash. That brighter outlook is having a direct impact on cash returns.
Specifically, P&G now expects to spend as much as $10 billion on stock buybacks, up roughly $1 billion from the previous forecast. P&G's dividend payout will still land at around $8 billion, meaning total shareholder returns will be $18 billion, or just slightly below last year's $19 billion bonanza.
Earnings gains should eventually catch up to that cash flow spike to help P&G boost its dividend more aggressively over the next few years. But the company will first have to pass along higher prices to its consumers.
The good news is that market share gains, rising sales volumes, and high demand for premium products are all factors that will support P&G's price increases. It is in a better position to make these changes than peers such as Kimberly-Clark. As a result, shareholders have good reasons to continue to expect market-leading returns from holding this stock.
