Procter & Gamble (PG 0.60%) just demonstrated why investors tend to prefer its stock during rocky economic times. While some formerly high-flying tech companies are seeing growth slowdowns, the consumer staples giant just reported its fastest sales expansion in modern times.
Shoppers through late March turned to P&G for essentials in skincare, healthcare, fabric care, and baby care, and they increasingly opted for its premium products in those niches.
Let's look at a few must-see highlights from that earnings update.
Image source: Getty Images.
Slide 1: Organic sales growth
Growth blew past expectations as organic sales gains hit a record 10%. A double-digit revenue spike is good news for most businesses but is fantastic for a company that already has an $80 billion annual footprint.
Image source: P&G investor presentation.
P&G beat its prior 9% growth record that occurred during the stock-up phase of the pandemic. In contrast to that period, demand this quarter was driven by innovation across niches like beauty and fabric care. Higher prices contributed to the gains, but so did increasing sales volumes and higher demand for premium products.
Slide 2: Market share gains
The big-picture market share trend is positive, too. P&G gained or held share in 38 of its top 50 competitive niches, which is its best performance on that score in many years. Across the entire sales base, the company gained 0.5 percentage points in market share.
Image source: P&G's investor presentation.
That boost might sound small, but it translates into many more loyal households using brands like Tide, Pampers, and Bounty. The market-share success also implies that P&G has hit on the right strategy for boosting the value of its products through upgraded packaging, marketing, and performance. Consumers are responding to those changes, in part by increasingly opting for P&G's more premium products.
Slide 3: Cash flow
P&G left its earnings outlook unchanged while boosting its sales forecast for fiscal 2022, which ends in late June. The cash picture is bright even though inflation is accelerating and rising costs are hurting its gross profit margin.
Image source: P&G's investor presentation.
The economic outlook might be darker when the company issues its first official 2023 forecast in July. But investors' returns are still likely to be supported by gushing cash.
P&G is expecting to turn nearly all of its earnings into free cash flow this year, which should produce enough cash to deliver about $20 billion to investors through dividends and stock buybacks. While it is anyone's guess whether consumers will start turning away from P&G's branded essentials over the next several quarters, their appetite for these products has only grown since the start of the pandemic.
That fact, plus P&G's industry-leading position and high cash returns, suggests investors will be happy owning this stock over the long term despite potentially slowing growth in fiscal 2023.
