Valued at a $396.41 billion market cap, The Procter & Gamble Company (PG) offers branded consumer packaged goods globally. It operates through Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care segments. The company reported mixed results in the third quarter of fiscal 2024.
Procter & Gamble reported third-quarter earnings per share of $1.52, beating the analysts’ estimate of $1.41. However, the company’s net sales of $20.20 billion slightly missed the consensus estimates of $20.44 billion. Net sales for Beauty, Grooming, Health Care, and Fabric & Home Care segments grew by 2%, 3%, 2%, and 2% year-over-year, respectively.
However, the company’s Baby, Feminine & Family Care segment experienced a 2% decrease in net sales year-over-year.
Also, during the third quarter, PG returned $3.3 billion of cash to shareowners, comprising around $2.3 billion in dividend payments and $1 billion of share repurchases. Earlier in April, the declared dividend rise marked the 68th consecutive year of dividend hikes and the 134th consecutive year that P&G has paid a dividend since its incorporation in 1890.
Jon Moeller, Chairman of the Board, President, and CEO of PG, said, “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.”
For the fiscal year 2024, PG expects a 2% to 4% year-over-year increase in sales growth. The company raised its core net earnings per share growth from a range of 8% to 9% to a range of 10%-11% compared to the previous year. Also, it anticipates paying more than $9 billion in dividends and repurchasing $5 to $6 billion of common shares in 2024.
Shares of PG have gained 13.8% over the past six months and 11.8% over the past year to close the last trading session at $167.96.
Let's look at factors that could influence PG’s performance in the upcoming months.
Impressive Dividend Growth History
On July 9, PG’s Board of Directors declared a quarterly dividend of $1.0065 per share, payable on or after August 15, 2024, to common stock shareowners of record at the close of business on July 19, 2024. The company has raised its dividend for 68 straight years, reinforcing its commitment to return cash to shareowners, who rely on steady income earned with their investment in P&G.
PG pays a $4.03 per share dividend annually, translating to a 2.40% yield on the current share price. Its four-year average dividend yield is 2.41%. Over the past five years, PG’s dividend payments have grown at a CAGR of 5.9%.
Robust Financials
For the third quarter that ended March 31, 2024, PG’s net sales marginally increased year-over-year to $20.20 billion. Its gross profit grew 7% from the year-ago value to $10.34 billion, and its operating income rose 5% from the prior year’s quarter to $4.46 billion. Additionally, its earnings before income taxes increased 7.1% year-over-year to $4.59 billion.
In addition, net earnings attributable to PG amounted to $3.75 billion, a 10.5% year-over-year increase. Its net earnings per common share amounted to $1.52, a 11% year-over-year increase. Also, its adjusted free cash flow for the quarter stood at $3.29 billion. As of March 31, 2024, PG’s cash and cash equivalents were $6.83 billion.
Favorable Analyst Expectations
Analysts expect PG’s revenue for the fourth quarter (ended June 2024) to grow 1.5% year-over-year to $20.86 billion. Its EPS for the same period is expected to increase marginally year-over-year to $1.37. Moreover, the company has topped consensus EPS estimates in all four trailing quarters, which is impressive.
For the fiscal year ended June 2024, Street expects PG’s revenue and EPS to grow 2.8% and 11% from the prior year to $84.32 billion and $6.55, respectively. In addition, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 3.2% and 6.3% year-over-year to $87 billion and $6.96, respectively.
Stretched Valuation
In terms of forward non-GAAP P/E, PG is trading at 25.64x, 49% higher than the industry average of 17.20x. The stock’s forward EV/Sales multiple of 5.01 is 190% higher than the industry average of 1.73. Likewise, its forward Price/Cash Flow of 20.64x is 76% higher than the industry average of 11.72x.
Moreover, the stock’s forward Price/Sales multiple of 4.70 is 276.9% higher than the industry average of 1.25. Its forward EV/EBITDA of 18.31x is 72% higher than the industry average of 10.64x.
High Profitability
PG’s trailing-12-month gross profit margin of 51.46% is 46.3% higher than the 35.17% industry average. Similarly, the stock’s trailing-12-month EBITDA margin of 28.81% is 128.7% higher than the industry average of 12.60%. Also, its trailing-12-month net income margin of 17.99% is 279.9% higher than the industry average of 4.74%.
Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 31.73%, 16.26%, and 12.65% are significantly higher than the industry averages of 11.42%, 6.99%, and 4.66%, respectively. Its trailing-12-month levered FCF margin of 14.62% is 149.1% higher than the industry average of 5.87%.
POWR Ratings Reflect Uncertainty
PG’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PG has a B grade for Sentiment, consistent with optimistic analyst estimates. The stock has a B grade for Quality, justified by its higher profitability relative to its peers.
However, PG has a D grade for Value, in sync with its higher-than-industry valuation.
Within the Consumer Goods industry, PG is ranked #18 out of 52 stocks.
Beyond what I have stated above, we have also given PG grades for Growth, Stability, and Momentum. Get all PG ratings here.
Bottom Line
PG reported mixed results for the third quarter of 2024, surpassing analyst expectations for EPS but falling short on revenue. The company’s long-term prospects remain promising, driven by its strong brand portfolio, a history of consistent dividend payouts, and ongoing innovation in its product lines.
However, Procter & Gamble faces near-term challenges, such as inflationary pressures and intense competition. Given PG’s elevated valuation and near-term bleak outlook, waiting for a better entry point in this stock seems wise now.
How Does The Procter & Gamble Company (PG) Stack Up Against Its Peers?
Given its near-term uncertain prospects, the odds of PG outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these three A (Strong Buy) or B-rated (Buy) stocks from the Consumer Goods industry:
Ennis, Inc. (EBF)
Virco Manufacturing Corporation (VIRC)
Henkel AG & Co. KGaA - ADR (HENKY)
To explore more A or B-rated consumer goods stocks, click here.
What To Do Next?
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PG shares were trading at $167.93 per share on Monday morning, down $0.03 (-0.02%). Year-to-date, PG has gained 16.76%, versus a 16.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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