Stocks of P&G Pull Back From Record Highs After Profit Beats, but Sales Fall Unexpectedly

Shares of Procter & Gamble Co. (P&G) experienced a sharp decline on Tuesday after the consumer goods giant reported a fiscal fourth-quarter profit that surpassed expectations but revealed an unexpected drop in sales.

‍

The company saw a 1% increase in volume, driven by growth in its grooming, healthcare, and fabric and home care products, coupled with a 1% rise in prices. However, sales were negatively impacted by unfavorable foreign-currency exchange rates.

‍

P&G’s stock (PG) fell by 5.93% in morning trading, following a record-high close on Monday. This decline marked the stock's largest one-day selloff since a 6.2% drop on July 29, 2022. The selloff jeopardized the stock’s six-month winning streak, which would be the longest since a seven-month streak ended in November 2018. As of now, the stock is down 3.2% for the month.

‍

The company, known for brands such as Tide, Pampers, Gillette, and Oral-B, reported net income for the quarter ending June 30 of $3.14 billion, or $1.27 per share, down from $3.38 billion, or $1.37 per share, a year earlier. Excluding nonrecurring items, core earnings per share (EPS) were $1.40, beating the FactSet consensus estimate of $1.37 and marking the eighth consecutive quarterly profit beat.

‍

Net sales slipped 0.1% to $20.53 billion from $20.55 billion, missing the FactSet consensus estimate of $20.72 billion and marking the third straight quarter of sales misses. Despite a 1% increase in prices and volume, growth in grooming, healthcare, and fabric and home care products was offset by weaknesses in beauty and baby, feminine, and family care segments.

‍

P&G’s gross margin improved to 49.6% from 48.4%, aided by productivity improvements, lower commodity costs, and the benefits of higher pricing.

‍

During a post-earnings call with analysts, when asked about the health of the consumer, given recent struggles highlighted by other companies, P&G indicated they didn’t see the same dynamics. "We generally don’t see the dynamic that some are describing," a P&G executive stated, according to a FactSet transcript.

‍

P&G pointed out that if consumers were struggling, there would typically be a shift from branded products to private-label alternatives. However, private-label market share remained consistent with pre-COVID levels in North America and Europe, showing little change in recent quarters.

‍

The company emphasized that its products fall into less discretionary categories, making them less affected by consumers tightening their budgets. P&G’s products are typically in “daily use” categories where performance drives brand choice. "We typically have the best-performing product in the market, at least that’s our objective, and as a result, we’re not seeing significant consumer-driven impact," a P&G executive explained.

‍

For fiscal 2025, P&G expects core EPS to be between $6.91 and $7.05, which aligns with the current FactSet EPS consensus of $6.97. The company anticipates sales growth in the range of 2% to 4%, while the current FactSet sales consensus of $86.88 billion suggests a 3.4% increase.

‍

In the first quarter, P&G expects to incur a $750 million charge for accumulated currency translation losses following the completion of its business divestiture in Argentina on July 1.

‍

Despite the recent dip, P&G's stock has climbed 9% year to date. In comparison, the Consumer Staples Select Sector SPDR ETF (XLP) has gained 8%, and the S&P 500 index (SPX) has advanced 13.8%.

‍

This summary captures the significant aspects of P&G’s recent performance, highlighting the mixed results and market reactions, along with the company's outlook and strategic insights.

‍