Procter & Gamble (PG 1.16%) is about halfway through its fiscal 2023, and investors can already see clear themes emerging about its growth opportunities. On the bright side, P&G expects strong sales gains even after two consecutive years of above-average growth. Risks are rising, though, as consumers become more price sensitive and as costs continue rising.
With that backdrop in mind, let's take a closer look at the consumer staples giant's prospects for 2023 and beyond.
Cutting through the noise
Procter & Gamble's latest earnings update showed a 5% organic sales boost for the period that ended in late December. Those gains kept the company in a strong market share position. For context, rival Kimberly-Clark (KMB 0.31%) reported a similar 5% uptick.
NYSE: PG
Key Data Points
Yet looking deeper reveals major stresses on both businesses due to exchange rate shifts, rising costs, and slowing demand. P&G executives in late January said they were in a "very difficult cost and operating environment," but were encouraged by the broader growth trends. The company was able to increase prices by 10% late last year, offsetting a 6% drop in sales volumes. Those results mirrored Kimberly-Clark's late 2022 performance.
Cash and earnings
P&G's premium market position becomes clearer when you include key financial metrics like profitability. Yes, operating profit margin has declined from the 2021 high of 24% of sales. But the market share leader in categories like laundry care and diapers still trounces Kimberly-Clark with a 22% margin today.
PG Operating Margin (TTM) data by YCharts
P&G's cash position is similarly strong. While annual free cash flow has declined compared to earlier phases of the pandemic, the $14 billion it generated in fiscal 2022 was well above the $12 billion that shareholders saw in 2019.
These wins give management ample room to send cash back to investors. P&G is on track to deliver about $16 billion to shareholders this year, about evenly split between dividends and stock repurchase spending.
Outlook and valuation
P&G's outlook and valuation metrics suggest that the stock might perform relatively well through continued stock market volatility. Management in January raised its 2023 growth forecast to a range of between 4% and 5% compared to Kimberly-Clark's target of between 2% and 4%. P&G's earnings will expand faster thanks to its elevated, and stable, profit margin. Total returns are bolstered by the consumer staple giant's dividend, which yields just under 3% today and has increased in each of the last 66 years.
The stock doesn't look cheap compared to Kimberly-Clark. Investors are paying 4.3 times sales for P&G stock and roughly 2 times sales for its smaller peer. That premium makes sense considering P&G's bigger sales footprint and its control over key consumer niches like beauty care, home care, and laundry care.
Overall, investors who are considering the stock for 2023 have a good chance of seeing market-beating returns. P&G isn't likely to post huge gains, given that sales volumes and cash flow trends are shrinking. But its recent results illustrate why Wall Street likes this business for its balance of stable growth plus income. Assets like those become even more valuable during market volatility, which seems likely to continue impacting investors through 2023.
