Business

The thrill is over at Procter & Gamble: Trade these 2 stocks instead


On Thursday morning, consumer staples giant Procter & Gamble (PG) announced the company’s fiscal second-quarter financial results.

For the three-month period ending December 31, Procter & Gamble posted GAAP EPS of $1.59 on revenue of $20,773B. While this performance is down from $1.66 on $20,953 billion year over year, the end result has lived up to expectations, while the result has surpassed Wall Street.

An unfavorable exchange rate has a 6% negative impact on net sales.

Organic sales, which remove the impact of foreign exchange as well as buybacks and divestments, increased 5%. That’s not quite as rosy as it seems. The increase in organic sales was driven by a 10% increase from the price increase and a 1% increase from the active product category. Unfortunately, this was offset to a considerable extent by a 6% drop in shipping volume.

Wall Street looked for gains of less than 7% in price and a drop of about 2.6% in volume.

During this time period, P&G returned $4.2 billion in cash to shareholders through a $2.2 billion dividend payment and another $2 billion for common stock repurchases. pine.

Segment performance

Fabric & home care

Net sales increased 1% year over year to $7.032 billion, yielding $1.171 billion in net income, up 3% with a profit margin of 16.7%.

Baby, Women & Family Care

Net sales fell 1% year over year to $5,065 billion, yielding $848 million in net income, down 7% with a profit margin of 16.7%.

Beauty

Net sales fell 3% year-over-year to $3.807 billion, yielding $911 million in net income, down 4% on a profit margin of 23.9%.

Health care

– Net sales increased 2% year over year to $3,051 billion, yielding $686 million in net income, down 2% with a profit margin of 22.5%.

grooming

Net sales fell 9% year over year to $1,643 billion, yielding $404 million in net income, down 15% on a profit margin of 24.6%.

Procter & Gamble as a company brought in net sales of $20,773B (-0.7%), yielding a net income of $3,959B (-7%). For the quarter, gross margin fell to 47.5% from 49.1% a year ago, while operating margin fell from 24.7% to 23%.

guide

For the full financial year, Procter & Gamble is increasing its package sales guidance to a range of -1% to a fixed range of -3% to -1%. P&G is also raising the lower bound of its organic sales growth outlook to a range of +4% to +5% from a range of +3% to +5%. Forex is expected to be a negative 5% headwind for the whole year.

Procter maintained its previous outlook for full-year EPS, which is a range stretching from last year’s flat $5.81 to 4%, though the company added that under current conditions, they continue to expect EPS results to fall to the lower end of that range.

Capital expenditures are expected to account for about 5% of net sales, while the company continues to achieve an adjusted free cash flow yield of 90%. This would give $15 billion or so the company expects to return to shareholders for the entire year.

fund

Operating cash flow for the period was $3,574B. Subtracting $708 million in capital expenditures, the company generated adjusted free cash flow of $2.866 billion. With earnings of $3.959 billion, the adjusted free cash flow yield rate is 72%.

Moving on to the balance sheet, the company ended the quarter with a net cash position of $6,854B and inventory of $7,541B. These two line items are down 5% and up 8.9%, respectively, over the past six months. This puts current assets at $21.866 billion, matching the level of six months ago.

Total short-term debt is $38.746 billion (not misprinted), including $14.3 billion in short-term debt. Well, by my standards a current ratio of 0.56 is unacceptable. The fact that this ratio is down from 0.65 six months ago means that this balance sheet is still headed in the wrong direction. Removing those inventories, the company ended the quarter with a small quick ratio of 0.37, down from 0.45 six months ago.

Total assets amount to $117,715 billion including “goodwill” and other intangible assets of $63,545 billion or nearly 54% of total assets. You know we’re not thrilled with that. Total liabilities minus equity is $72.99 billion, including additional debt of $20,582 billion.

This is indeed a sloppy balance sheet, especially when one considers that the company generates significant free cash flow. I know that can affect the stock price, but does anyone at P&G consider buying back fewer shares or maybe not yielding 2.5%? I mean, that’s what it takes to solve this mess. It can be done. It will require some enjoyment.

My thoughts

I’m a bit disappointed. Not so much in terms of income, nor the ability to generate free cash flow. More so in offsetting rising prices/shipping volumes, as well as in the balance sheet. I come small long. I made 6% on the trade, even with this morning’s sell-off, so I really don’t have to do anything now. I know the balance sheet has skyrocketed. I was really expecting to see some progress in improvement.

I was thinking that PG could be a staple I could put on my books during the coming recession. One would think that a consumer staples seller with loyal customers and steady free cash flow would fit that bill. I also like that dividend. Now, I have to ask myself… Do I really want to own a large company that is trading at 25 times expected earnings that seems content with a deteriorating balance sheet? Going into that recession? I think not.

That means I will find a replacement for PG. Kimberly Clark (KMB) is also expensive, also runs with less than desired balance sheet, but yields 3.5%. Then there’s Campbell’s Soup (CPB) . No, you can’t get rid of a lousy-looking balance sheet by going there, but CPB delivers 2.8% and you can get that name with 17x projected earnings. Food for thought. And PG… sold to you. Get the 986 badge.

Get an email notification every time I write an article about Real Money. Click “+Follow” next to my name for this post.

news7f

News7F: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, Sports...at the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button