Procter & Gamble (PG -0.78%) just reported its financial results for the first quarter of fiscal 2024, ended Sept. 30. Net revenue of $21.9 billion and diluted earnings per share of $1.83 both beat Wall Street expectations. Unsurprisingly, investors reacted positively, sending the shares higher immediately following the announcement.
There's a lot to unpack with this consumer staples stock's latest quarterly numbers. Let's take a closer look at Procter & Gamble, a business that's in Berkshire Hathaway's portfolio, in a bit more depth. Then investors can decide if the shares are worth buying right now.
Procter & Gamble is beating expectations
The company's revenue gain was boosted, once again, by price increases for its various products. In fact, in 18 of the last 19 quarters, Procter & Gamble's financial results were driven largely by beneficial pricing trends.
"We continue to believe that we can price with strong innovation," CFO Andre Schulten said on the recent earnings call. "And we have gained even more confidence over the past two years that our strategy of pricing with innovation to drive superiority and create value for the consumer is working."
Operating leverage is also a key part of the story with Procter & Gamble. The chart below helps show exactly how the company's net income rose at a faster clip than its top line. Gross profit and operating income both increased above 16% due to pricing contributions and productivity improvements.
As you can also see, the business posted gains across all five of its key product categories, which is clearly a positive sign. The healthcare segment, which includes Vicks, Pepto Bismol, and Oral-B, saw net sales jump 11.5% year over year. Beauty products rose by 3.4%, the worst-performing segment. Included here are Old Spice and Head & Shoulders products.
Looking ahead, the leadership team expects net sales to rise by 3% (at the midpoint) for the full fiscal year. For a mature enterprise like Procter & Gamble, investors should be happy if this forecast becomes a reality. This is especially true given the uncertain macro environment. But consumers might be much more inclined to trade down when shopping for essentials in order to save money, which could add pressure to the company's near-term outlook.
However, it's very encouraging that management believes the unit volume of its products will grow in the current fiscal year compared to fiscal 2023. Investors will need to pay close attention to these trends.
Investment implications
Besides just looking at data from the latest quarter, investors who are considering buying this stock need to think about some bigger-picture factors.
For starters, Procter & Gamble possesses a wide economic moat, thanks to the strong brand recognition of its products, many of which have leading market share in their respective categories.
Owning powerful brands has resulted in proven pricing power for Procter & Gamble. As consumers build loyalty around certain items, they are probably less inclined to switch to cheaper alternatives. The thinking likely follows that if something has worked for so long, why change it?
Pricing power is Buffett's favorite qualitative characteristic to look for, so it's not too surprising that his conglomerate has an ownership stake in Procter & Gamble. The investment has worked out, as the stock is up 83% in the past five years (as of Oct. 18).
Investors will also appreciate management's focus on using its free cash flow to return capital back to shareholders. The company spent $3.8 billion combined in dividends and share buybacks in the last three months, which boosted returns. The current dividend yield of 2.5% might not be all that impressive, but Procter & Gamble has consistently raised the quarterly payout over the past few decades.
Trading at a price-to-earnings ratio that's in line with its three-year average, Procter & Gamble looks like a safe stock to invest in right now.
