P&G Earnings Top Estimates as Price Hikes Offset Rising Costs, Company Raises 2022 Sales Forecast

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  • Procter & Gamble reported fiscal second-quarter earnings and revenue that topped Wall Street's expectations.
  • The company raised its outlook for sales growth from a range of 2% to 4% to a range of 3% to 4%.
  • P&G also said it expects commodity and freight costs to weigh even more heavily on its fiscal 2022 results.

Procter & Gamble on Wednesday reported quarterly earnings and revenue that topped Wall Street's expectations as price hikes helped offset higher commodity and freight costs.

On the heels of its strong performance, the company raised its outlook for sales growth but said it expects inflation to weigh even more heavily on its fiscal 2022 results.

Shares of P&G rose 3.9% in morning trading.

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

  • Earnings per share: $1.66 vs. $1.65 expected
  • Revenue: $20.95 billion vs. $20.34 billion expected

The consumer giant reported fiscal second-quarter net income of $4.22 billion, or $1.66 per share, up from $3.85 billion, or $1.47 per share, a year earlier. Analysts surveyed by Refinitiv were expecting $1.65 per share.

Net sales rose 6% to $20.95 billion, topping expectations of $20.34 billion. Organic revenue, which strips out the impact of foreign currency, acquisitions and divestitures, also rose 6% in the quarter. About half of that growth came from the benefit of raising prices on select products.

"While it's very early for these commodity-based price increases, to date, we see positive signs," CEO Jon Moeller said Wednesday on CNBC's "Squawk Box." "Probably 20% to 30% less price elasticity than we were expecting, and if you look at, for example, private-label market shares — private label being the lowest price offered on the market — they're down."

More price increases are on the way. Executives told analysts on the conference call that they already told retailers about increases planed for fabric care products, like Tide detergent and Downy dryer sheets, slated to take effect Feb. 28. In mid-April, P&G will raise prices on some of its personal health care products.

P&G's health-care and fabric and home-care segments both saw organic sales jump 8%, tying for the highest of its divisions. The company said a more intense flu and cold season propelled organic sales for its personal health-care business by 20% for the quarter, lifting demand for Vicks and ZzzQuil products. Its oral-care products, which include Oral-B toothbrushes and Crest toothpaste, got a boost from price increases.

Price hikes also helped P&G's home-care segment, which includes Febreze and Mr. Clean. The pandemic has created more demand for cleaning products. P&G's fabric-care business saw double-digit growth, thanks to strong sales of fabric enhancers and laundry detergent pods.

The company's grooming division, which includes Venus and Gillette, saw organic sales jump 5%. The segment has struggled in recent years due to increased competition and shaving trends, but price hikes helped sales this quarter.

Organic sales of the company's baby, feminine and family care segment rose 5% in the quarter, largely due to higher prices. The division includes Pampers diapers, Charmin toilet paper and Bounty paper towels.

P&G's beauty segment reported the smallest organic sales change for the quarter, rising just 2%. But the company is looking to improve those results with three acquisitions in the category over the last three months, snapping up Farmacy Beauty, hair-care brand Ouai and Tula Skincare.

"All of those focus on the premium channel in the U.S., so that's an opportunity for us," CFO Andre Schulten said on a call with journalists. "We've successfully done these integrations, when you think about First Aid Beauty or Native [deodorant]."

For fiscal 2022, P&G is now calling for 3% to 4% sales growth, up from its prior forecast of 2% to 4%. It also plans to boost its stock buybacks for the fiscal year from a range of $7 billion to $9 billion to a range of $9 billion to $10 billion. But the company didn't change its outlook for earnings as it also predicted higher costs.

For the second consecutive quarter, P&G increased its inflation forecast. The company expects to pay $2.3 billion after tax in commodity costs and $300 million after tax for higher freight costs, up from last quarter's outlook of $2.1 billion on commodities and $200 million on freight. Combined with a $200 million hit from foreign currency, P&G is forecasting a $2.8 million headwind, or $1.10 per share, to its fiscal 2022 earnings compared with the year prior.

Read the full press release here.

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