It has taken some time, but Procter & Gamble (NYSE: PG) shareholders are finally seeing improving results out of the consumer products titan. The owner of consumer staple franchises including Gillette razors and Pampers diapers this week announced faster sales gains than it has managed in more than two years. P&G paired that positive revenue news with an uptick in profitability, too. The results kept the company on pace to meet its aggressive operating and financial targets for fiscal 2019.
More on those fiscal-year goals in a moment. First, here's how the first-quarter results matched up against the prior-year period:
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P&G's expansion rate sped up significantly, with help from strong sales volumes and steady pricing. A few long-struggling categories, including shaving care, enjoyed healthy rebounds that suggest management's strategic initiatives might finally be finding traction.
The key highlights of the quarter:
- Net sales were held flat due to foreign exchange moves. On an organic basis, though, sales jumped 4% to mark a big acceleration over the 1% boost P&G logged in each of the past two quarters.
- P&G began to roll out price increases in key parts of its portfolio during the quarter, and pricing improved compared to the prior quarter. Yet most of the growth came from higher sales volumes, especially in shaving care and in the laundry segment. The company credited its e-commerce gains and prior price cuts for helping boost the Gillette brand. Laundry products, meanwhile, continue to sell well thanks to innovations and effective marketing support.
- Gross profit margin slipped as savings from cost cuts were offset by rising input prices. However, P&G saw operating profit margin tick higher thanks to its steady pricing and falling expenses.
- Adjusted free cash flow was $2.7 billion, more than 90% of which the company converted directly into earnings.
- P&G spent $1.3 billion on stock buybacks and $1.9 billion on dividend payments.
What management had to say
CEO David Taylor celebrated the speeding growth rate while noting that it was powered by rising demand. "We generated strong consumption, organic volume and organic sales in the first quarter," he said in a press release. Executives mentioned improving industry trends in some segments but said that most of the rebound can be tied to their supply chain, innovation, and marketing initiatives. "Our focus on superiority, productivity and improving P&G's organization and culture is driving improved results," Taylor explained.
P&G affirmed all the key parts of its fiscal-year outlook. The company sees reported sales falling as much as 2%, but only due to foreign currency swings. Organic sales should still rise by between 2% and 3%, management said, compared to just 1% last year and 2% in fiscal 2017. Earnings are predicted to rise at a faster pace, of between 3% and 8%, thanks to a mix of rising prices and efficiency savings. These benefits will be partially offset by higher commodity costs on inputs like plastic, oil, and paper.
Overall, the report gives investors good reasons for optimism about P&G's business. Yes, its recovery has stalled several times over the last two years. Yet underlying demand is looking stronger today than it has in some time. That positive trend could help P&G achieve a meaningful volume boost that would support increased prices -- and profitability -- in the quarters to come.
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