Consumer products behemoth Proctor & Gamble (NYSE:PG)
missed analysts’ expectations in Q1 CY2024, with revenue flat year on year at $20.2 billion. It made a non-GAAP profit of $1.52 per share, improving from its profit of $1.37 per share in the same quarter last year.
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Procter & Gamble (PG) Q1 CY2024 Highlights:
- Revenue: $20.2 billion vs analyst estimates of $20.44 billion (1.2% miss)
- EPS (non-GAAP): $1.52 vs analyst estimates of $1.41 (7.5% beat)
- Raised full year 2024 EPS (non-GAAP) from up -8-9% year on year previously to up 10-11% year on year currently (implies $6.52 vs. estimates of $6.41)
- Gross Margin (GAAP): 51.2%, up from 48.2% in the same quarter last year
- Free Cash Flow of $3.29 billion, down 23.2% from the previous quarter
- Organic Revenue was up 3% year on year
- Market Capitalization: $370.1 billion
“We delivered solid sales and strong earnings growth in the third quarter despite multiple headwinds, enabling us to raise our EPS growth guidance and maintain our top-line outlook for the fiscal year,” said Jon Moeller, Chairman of the Board, President and Chief Executive Officer.
Founded by candle maker William Procter and soap maker James Gamble, Proctor & Gamble (NYSE:PG) is a consumer products behemoth whose product portfolio spans everything from facial tissues to laundry detergent to feminine care to men’s grooming.
Household ProductsHousehold products stocks are generally stable investments, as many of the industry’s products are essential for a comfortable and functional living space. Recently, there’s been a growing emphasis on eco-friendly and sustainable offerings, reflecting the evolving consumer preferences for environmentally conscious options. These trends can be double-edged swords that benefit companies who innovate quickly to take advantage of them and hurt companies that don’t invest enough to meet consumers where they want to be with regards to trends.
Sales GrowthProcter & Gamble is one of the most widely recognized consumer staples companies in the world. Its influence over consumers gives it extremely high negotiating leverage with distributors, enabling it to pick and choose where it sells its products (a luxury many don’t have).
As you can see below, the company’s annualized revenue growth rate of 3.9% over the last three years was weak as consumers bought less of its products. We’ll explore what this means in the “Volume Growth” section.
This quarter, Procter & Gamble’s revenue grew 0.6% year on year to $20.2 billion, falling short of Wall Street’s estimates. Looking ahead, Wall Street expects sales to grow 3.2% over the next 12 months, an acceleration from this quarter.
Volume GrowthRevenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether Procter & Gamble generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, Procter & Gamble’s average quarterly sales volumes have shrunk by 2%. This decrease isn’t ideal as the quantity demanded for consumer staples products is typically stable. Luckily, Procter & Gamble was able to offset fewer customers purchasing its products by charging higher prices, enabling it to generate 6.1% average organic revenue growth. We hope the company can grow its volumes soon, however, as consistent price increases (on top of inflation) aren’t sustainable over the long term unless the business is really really special.
In Procter & Gamble’s Q1 2024, year on year sales volumes were flat. This result was a well-appreciated turnaround from the 3% year-on-year decline it posted 12 months ago, showing the company is heading in the right direction.
Key Takeaways from Procter & Gamble’s Q1 Results
Revenue unfortunately missed analysts’ expectations. On the other hand, the company did beat EPS slightly and raised its full year EPS guidance to a level above expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is flat after reporting and currently trades at $157.2 per share.
