3 new reasons to love Procter & Gamble Stock

Procter & Gamble (NYSE:PG) just gave shareholders more reason to celebrate. The consumer staples giant said Wednesday morning that it has gained market share even after demand has exploded over the past two years. Profitability is benefiting from higher prices and cash flow is also soaring.

The operational update put P&G on a stronger growth path than most investors expected. And the profit picture is improving despite soaring costs.

Let’s take a closer look at three reasons why the stock looks even more attractive today.

Image source: Getty Images.

1. P&G Exceeds Sales Goals

Investors had hoped that P&G would post only a 3% increase in sales, which would have surpassed the 8% increase of the previous year. Instead, the company saw organic sales up 6%, with each of its five main divisions growing year-over-year.

The fabric and home care segment, home to brands like Tide detergent, stood out. The healthcare niche was also boosted by increased demand for flu symptom management, likely linked to the latest spike in COVID-19 cases.

But P&G has struck a surprisingly strong balance in the portfolio of higher prices and rising sales volumes. “We achieved very strong revenue growth,” CEO Jon Moeller said in a press release.

2. P&G faces cost increases

P&G faced challenges related to rising costs. In fact, gross profit margin fell 4 percentage points due to soaring commodity prices like plastics and higher transportation costs. Yet the company has offset these pressures with savings in other areas of the business and by raising prices. It has also helped consumers to still spend aggressively on premium products like Tide Pods.

Overall profitability fell 2.5 percentage points, translating into basic earnings per share growth of just 1%. This result was better than expected. It also implied P&G finally getting inflation under control, which is expected to squeeze earnings by more than $2 billion this fiscal year.

3. More cash back

The new annual outlook was filled with good news for investors. P&G now expects sales growth of between 4% and 5% in 2022 compared to its previous target of 2% to 4%.

We will have a better idea of ​​how this translates to market share growth after the rival Kimberly Clark publishes its results at the end of January. However, P&G appears to be earning more than its fair share from core consumer goods categories like home care, baby care and beauty products.

Executives also confirmed their earnings outlook which calls for base earnings to increase between 3% and 6%. Yes, that equates to a modest decline in profitability this year. But investors worried about steeper declines due to inflation and supply chain issues.

Cash flow forecasts have been improved, meaning P&G has more resources it can invest in the business, even as it spends aggressively on dividends and stock buybacks. Management now expects to return between $17 billion and $18 billion to shareholders through these channels in 2022, up from the previous target of $15 billion to $16 billion.

The high end of this forecast would mark only a modest step back from last year’s $19 billion in cash returns. That success means P&G is avoiding the kind of growth and hangover that Wall Street feared after soaring demand over the past two years. It should also amplify total returns for investors who simply hold the stock long term.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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