Procter & Gamble Earnings Beat, But Company Warns Cost Pressure Will Weigh on Future Profits

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  • Procter & Gamble topped analysts' estimates for quarterly earnings and revenue as consumers bought more premium health and personal care products.
  • The company warned that increasing commodity and freight costs could hit its earnings by roughly $1.9 billion in the year ahead.
  • The maker of Tide, Charmin and Pampers is on track to raise prices on some products this fall in response to the rising costs.

Procter & Gamble on Friday topped analysts' estimates for quarterly earnings and revenue as consumers bought more premium health and personal care products.

But the company warned that increasing commodity costs could hit its earnings in the upcoming year. Last week, rival Unilever also noted that it is facing higher costs for packaging, ingredients and transportation.

P&G shares jumped 1% in premarket trading on the news.

Here's what P&G reported for the quarter ended June 30 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $1.13 vs. $1.08 expected
  • Revenue: $18.95 billion vs. $18.41 billion expected

P&G reported net income for the quarter of $2.9 billion, or $1.13 per share, compared with $2.8 billion, or $1.07 per share, a year earlier. Analysts surveyed by Refinitiv were expecting earnings per share of $1.08.

Net sales rose 7% to $18.9 billion from $17.7 billion a year earlier. That beat Wall Street expectations for $18.41 billion. Organic sales climbed 4%.

P&G reported the strongest growth in its beauty and health-care businesses, as consumers prepare to head back to the office and return to social gatherings.

The health business saw organic sales climb by 14%. Much of that growth came from oral care products, such as Oral B toothbrushes.

P&G's beauty segment reported organic revenue growth of 6%. The company saw continued demand for its premium SK-II brand. But it said some of the gains were offset from lower selling volumes in North America due to inventory issues.

The company's fabric and home-care segment, which includes Dawn and Cascade dish detergents, reported organic sales growth of 2%. Growth has been slowing in this segment as consumers buy fewer cleaning supplies for their homes.

The company's grooming segment, which includes Gillette and Venus, saw organic sales growth of 6%. 

Baby, feminine and family care was the only segment with declining organic sales, reporting a 1% drop from a year earlier. The birth rate in the U.S. fell for the sixth consecutive year in 2020, weighing on purchases of diapers, baby formula and other child-care products.

For fiscal 2022, P&G is calling for fiscal year sales to grow 2% to 4% from the prior year. Organic sales are forecast to rise in the same range.

It's calling for core earnings-per-share growth of 3% to 6% from the previous fiscal year's $5.66.

P&G said its current outlook estimates taking a roughly $1.9 billion after-tax hit from higher commodity costs and freight costs.

Analysts surveyed by Refinitiv had been looking for adjusted earnings per share of $5.90 in fiscal 2022 on sales of $78.17 billion.

"Everybody is seeing that right now, the key will be how you deal with it," outgoing Chief Executive David Taylor told CNBC's "Squawk Box" on Friday. "While we are facing tough [comparisons] and higher costs going into the year, the momentum is very strong."

P&G announced Thursday evening that Chief Operating Officer Jon Moeller will become CEO in November, replacing Taylor, who will become executive chairman. Taylor, 62, had been CEO since Nov. 1, 2015.

It will now be Moeller's job to find ways to combat the cost pressures and to come up with a strategy to keep P&G's momentum going and its organic sales growing year after year. For the past three years they have grown upwards of 5% to 6%.

The company — whose portfolio includes Tide detergent, Charmin toilet paper and Pampers diapers — is on track to raise prices on some products this fall in response to higher commodity costs. Rival Kimberly-Clark, which makes Huggies, has announced price hikes on various items.

After the price increases go into effect, P&G is planning to hold market share by trying to increase consumers' perception of the value of its products and introducing new or upgraded items. Companies such as P&G and Kimberly-Clark are betting consumers will be willing to pay more for the brand version, instead of opting for a cheaper private label.

Chief Financial Officer Andre Schulten said during a media call that about 75% of P&G's products are considered superior or premium, so consumers are already showing a willingness to pay a higher price for those goods.

"We believe that where we need to take pricing, we'll be able to take pricing," he said.

P&G shares are up less than 1% year to date. The company has a market cap of $341.4 billion.

—CNBC's Amelia Lucas contributed to this reporting.

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