Stock Analysis & Ideas

P&G Delivers Solid Results in a Challenging Environment

Procter & Gamble Company (PG), a global leader in consumer branded and package products, delivered solid results for the first quarter of Fiscal Year 2022 in a challenging environment, according to David Taylor, its chairman, president and CEO.

“We delivered solid results in our first quarter of fiscal 2022 in a challenging cost and operating environment,” said Taylor, following the release of the company’s Q1 financial report on Tuesday morning, which topped analyst estimates. “These results keep us on track to deliver our top-line, bottom-line and cash targets for the fiscal year.”

By “challenging environment,” Taylor refers to supply chain bottlenecks and labor shortages, which have raised the cost of doing business across several industries, cutting into the bottom line.

The problem was particularly acute in its Diaper and Yogurt business. Overall, the company expects its 2022 results to take a $2.3-billion hit due to higher commodity and freight costs.

Nonetheless, he is competent that the company can overcome these challenges the old way, by raising productivity and product quality. I am neutral on the stock. (See Analysts’ Top Stocks on TipRanks)

“We remain focused on executing our strategies of superiority, productivity, constructive disruption and continually improving P&G’s organization structure and culture,” said Taylor. “These strategies enabled us to build strong momentum before the COVID crisis and accelerate progress as we navigate through the crisis, and they remain the right strategies to deliver balanced growth and value creation.”

P&G created $4.6 billion for the quarter in operating cash flows, returning nearly $5 billion of cash to shareholders via $2 billion of dividend payments, and almost $3 billion in the form of stock buybacks.

Multiple Advantages

Over time, P&G has built multiple advantages to protect its market from the competition, and address the changing consumer demands.

One of these advantages is branding, the development and marketing of high-quality products, that allows the company to charge premium prices over the competition, and pass on higher production costs to consumers.

Then there’s scale the cost benefits associated with a large production size across product lines.

Lastly, there’s scope, the cost benefits associated with selling many products (over 2,000) through the same distribution channels.

These advantages help the company fend off competitor challenges, and provide it with the bargaining power to place its products with major retailers like Walmart (WMT) and Target (TGT).

Wall Street’s Take

Wall Street didn’t seem impressed by P&G’s multiple advantages following its financial results.

Instead, it focused on the $2.3 billion shortfall in its 2022 earnings due to higher commodity and freight costs.

The situation isn’t that better over the last 12 months, where P&G shares have been almost flat, as the household industry has underperformed the overall market. Things look much better over the last five decades, where P&G has outperformed the S&P 500.

TipRanks’ Smart Score System assigns a 6 out of 10 to the company, citing insider selling, decreased hedge fund activity, and very negative investor sentiment.

The analyst community doesn’t seem to share Wall Street’s pessimism for P&G’s stock. Instead, it rates its shares a Moderate Buy, based on nine Buy ratings, and seven Hold ratings assigned in the past three months.

The average P&G price target is $154.53, implying 10.1% upside potential.

That isn’t that lousy return, given the challenging environment in which the company is operating. Investors can collect another 2.4% annually in dividends.

Disclosure: At the time of publication, Panos Mourdoukoutas owned shares of P&G.

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