Procter & Gamble Co. (PG) has reported one of its most successful quarters in the past 20 years as its organic revenue for the third quarter of Fiscal Year 2022 climbed a solid 10% on a year-over-year basis. The growth was due to higher sales and pricing levels across all product categories.
The company’s organic sales measure removes the impacts of acquisitions, divestitures, and foreign exchange fluctuations from the reported figure.
Q3 Earnings Snapshot
The American consumer goods giant delivered earnings of $1.33 per share, up 6% year-over-year, and surpassed analysts’ expectations of $1.30 per share. Net sales jumped 7% year-over-year to $19.4 billion and exceeded consensus estimates of $18.7 billion.
On a negative note, its gross margin dropped 400 basis points due to higher commodity costs, a negative product mix, increased freight costs, and reinvestments in its products, offsetting the benefits of increased pricing and gross productivity savings.
What Changed This Quarter?
Yes, a company beating past sales records despite prevailing uncertainties in the global markets is plausible to spike curiosity among investors.
Possibly, soaring inflation, the Ukraine-Russia war, and supply-chain disruptions could do little to sway consumers from spending on basic household and personal necessities. At the beginning of 2022, a spike in the Omicron variant led to consumers piling essentials in order to avoid visits to the stores.
Moreover, P&G noticed a trend among consumers to spend money on premium products, which supported its revenue growth. The growth is also attributed to price increases made by the company to partly offset cost headwinds caused by rising commodity prices.
Is This Growth Sustainable?
During the quarter, overall pricing rose 5% in comparison to volume growth of 3%. To get a clearer picture, we are comparing these two metrics with the pre-COVID-19 and COVID-19 levels.
In Q3 2021, the company rose prices by 2% to offset the impact of rising commodity costs. However, there was no overall volume growth that quarter. Similarly, before the COVID-19 crisis, volume grew 3% despite a price hike of 2% in Q3 2019.
The company seems to have managed to grow its sales well despite the current inflationary environment. Perhaps, P&G’s several efforts to improve performance, such as constant innovation, product premiumization, and ensuring consumers satisfaction, may continue to provide support.
P&G’s updated Fiscal 2022 revenue guidance resonates with the above thought. It now projects organic sales growth in the range of 6-7% compared with prior expectations of 4-5%.
Wall Street’s Take
Following the release, Goldman Sachs analyst Jason English maintained a Buy rating on P&G with a price target of $173 (5.3% upside potential from current levels).
Overall, the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on nine Buys and five Holds. The average Procter & Gamble price forecast of $169.85 implies upside potential of 3.4%.
Looking at PG’s Website Traffic
We at TipRanks had predicted P&G’s good Q3 performance well ahead of the earnings release with the help of our Website Traffic Tool.
The tool reveals data on the number of unique visits plus total visits to a company’s website over a period of time. One can use this data to analyze what the visitor’s traffic to a publicly-traded company’s website indicates about the “stickiness” of the company’s products and services.
According to the tool, in Q3, PG’s total projected worldwide website visits rose 44.7% sequentially.
The Takeaway
Upward outlook revisions, strong quarterly performance, and a competitive edge in the consumer goods space are sufficient reasons to believe in the company’s upside potential. However, if gas and food prices continue to surge, some impact is likely to be seen in the consumer’s spending patterns, which may affect P&G’s sales.
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