Household Products

Procter & Gamble earnings and sales top estimates, sending shares higher

Key Points
  • P&G has been enjoying strong sales, driven in part by innovation, marketing and speed to market.
  • Its strongest growth this quarter came from its beauty, health care and fabric and home care lines.
  • "This exceeds even our heightened expectations," RBC analysts say.
P&G CFO Jon Moeller weighs in on quarterly earnings beat
P&G CFO Jon Moeller weighs in on quarterly earnings beat

Procter & Gamble on Tuesday again posted strong quarterly earnings, beating analysts' expectations on the top and bottom lines and allowing it to raise its sales and earnings outlook for the year.

The consumer giant has consistently been growing its sales, propelled by its innovation, marketing and a simplified organizational structure that has improved its speed to market. As of Monday's close, P&G shares have risen nearly 30% this year, boosting its market value to $298 billion. P&G shares jumped more than 4% in premarket trading on the news.

Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $1.37, adjusted, vs. $1.24 expected
  • Revenue: $17.80 billion vs. $17.42 billion expected

"This exceeds even our heightened expectations," RBC analysts said. They cautioned though, that P&G's continued market share gains may force competitors such as Clorox, Unilever and Kimberly-Clark to step up their competition in an effort to break P&G's momentum.

CEO David Taylor told analysts Tuesday morning that the company continues to see healthy competition in countries like China, though is not seeing any particular uptick in rivalry.

Meantime, he expressed confidence in the sustainability of the company's growth, pointing to an equal focus it is putting on growing both sales and profit. It is also focused on creating new products and businesses through innovation, rather than simply stealing from existing markets, Taylor said. P&G earlier this year announced it was launching digital diapers that track babies' sleep.

"We are creating business, not taking business from others," Taylor said.

Across the board, the company sees "continued consumer strength," he said. Should that strength weaken, though, Taylor said the company is well prepared to handle an economic downturn. He pointed to the company's innovation, as well as the categories it is in, like detergent, that consumers tend to view as essential.

P&G reported fiscal first-quarter net income of $3.59 billion, or $1.36 per share, up from $3.2 billion, or $1.22 per share, a year earlier.

Excluding items, P&G earned $1.37 per share, beating the estimate of $1.24 per share expected by analysts.

Net sales rose 7% to $17.80 billion, topping expectations of $17.42 billion.

The company raised its outlook for fiscal 2020 all-in sales growth from a range of 3% to 4% to a range of 3% to 5% growth compared with the prior fiscal year. It also said it now expects its core earnings per share to grow between 4% and 10% in fiscal 2020, from original expectations of 4% to 9% growth.

Its strongest growth came from its beauty, health care and fabric and home care lines. Stripping out the impact of currency and acquisitions, sales of its beauty business, which includes SK-II and Olay, grew 10% from a year earlier, its health-care business, which includes Crest toothpaste and Oral-B, grew 9%, and fabric and home care, which includes Tide and Downy, grew 8%.

P&G said sales were further boosted by a value-added tax planned to go into effect this month in Japan, which caused retailers in the country to stock up on inventory. The increased inventory added about 40 basis points to its growth this quarter.

That growth balanced out a continued drag at its Gillette shaving business. The brand has struggled to contend with competition from brands like Unilever's Dollar Shave Club and Harry's, which earlier this year announced plans to sell to Edgewell. P&G's shaving segment this past quarter grew sales by only 1% year over year, excluding the impact of currency and acquisitions. P&G last quarter wrote down the value of the Gillette brand by $8 billion.

Read P&G's earnings release here. 

Options traders bet this consumer staple stock will surge on earnings
Options traders bet this consumer staple stock will surge on earnings