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Procter & Gamble Can't Be Held Back by Inflation

A look at how well the company performed even in the face of higher input costs

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Jan 20, 2022
  • Procter & Gamble's recent results beat both revenue and earnings estimates.
  • Inflation is an issue, but this pressure was partially offset by higher prices without lowering demand.
  • 2-year stack rates are very impressive.
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Earnings season has begun to kick off. With inflation running hot, I am looking to see which companies are struggling with higher input costs and which are overcoming pressures.

Looking at its earnings results released on Wednesday, it is clear that the Procter & Gamble Co. (

PG, Financial) is succeeding at overcoming inflation thanks to strong brand loyalty. Let’s look closer at the company’s quarter to see why I added to my position in the name following the earnings release.

Earnings highlights

Procter & Gamble reported earnings results for its second quarter of fiscal year 2022 on Jan. 19. Revenue grew 6% year-over-year to $21 billion, beating Wall Street analysts’ estimates by $618 million. Adjsuted earnings per share of $1.66 was a 13% improvement from the prior year and 1 cent better than expected.

Organic revenue grew 6%, with all categories contributing at least 2% growth.

Beauty was up 2%, marking 25 straight quarters of organic sales growth. Hair care benefited from strength in shampoo and conditioner in North America. China showed growth as well. Skin and personal care was up due to gains in skin care, personal cleansing and deodorants in North America.

Grooming was up 5%, mostly due to higher prices. Shave care was up across sub-categories, with razors higher by a mid-teen percentage.

Health Care was tied for the best performance with 8% organic growth. Volume was up 4% and pricing added 1%. Unlike most categories, mix was a tailwind to results, adding 3%. Personal health care was one of the top performing categories with 20% growth from the prior year. Comparisons were fairly easy given the environment last year, but strength in respiratory was seen in all regions.

Fabric and Home also grew 8%, driven by a 7% increase in volume and slightly better realized prices. Premium innovation in fabric care was highlighted as a reason for the gains. Home care was up slightly on a year-over-year basis, but higher by 30% on a two-year stacked basis as the elevated demand seen during the worst of the Covid-19 pandemic was more than just maintained.

Baby, Feminine and Family Care was up 5%. Volume and mix were a 1% tailwind to results, with pricing adding in the remainder. Baby care did very well in North America and Europe, but saw higher competition in China. Family care was flat, but up double-digits from the same period two years ago as Covid-19 related demand remains in place.

Higher wages, raw materials and transportation costs did have an impact on margins. The gross margin fell 400 basis points as a benefit of 130 basis points from higher prices and 80 basis points of productivity savings were more than offset by product investment, product mix and higher commodity and freight costs.

On the plus side, SG&A expenses as a percentage of sales fell 150 basis points from last year.

Procter & Gamble expects to repurchase $9 billion to $10 billion worth of shares during the fiscal year and distribute more than $8 billion of dividends. The company also provided updated guidance for the fiscal year. All-in sales growth is expected to be 3% to 4%, up from 2% to 4%, while organic sales are projected to be higher by 4% to 5%, up from 2% to 4%. Currency exchange will likely be a 1% headwind to results. Adjusted earnings per share are expected to be in a range of $5.83 to $6.00 for fiscal year 2022, a 4.6% improvement from the prior year.


Organic revenue for the quarter was quite strong, especially when considering that Procter & Gamble had 8% organic growth in the same period of the prior fiscal year. This continues a trend of Procter & Gamble lapping difficult comparable periods and still showing gains. For example, organic growth in the first quarter was 4%, which followed a 9% improvement in the first quarter of fiscal year 2021.

Procter & Gamble’s products are clearly resonating with consumers, with the two-year organic stack rates in the low double-digits for the past two quarters.

Growth has been broad based as all 10 of Procter & Gamble’s product categories advanced market share. Aggregate market share expanded 60 basis points.

Some of the growth can be attributed to higher pricing, but organic volumes were higher in each category. Consumer activity has shown that Procter & Gamble’s higher prices across the breadth of its portfolio aren't leading to fewer purchases. Consumers are demonstrating that they are willing to pay up for products, which speaks to the brand loyalty for Procter & Gamble.

The raised guidance was also a positive sign that leadership expects to see demand not only sustained but improved upon. This is not easy to do considering the growth rates that were seen during the prior fiscal year.

Final thoughts

Procter & Gamble turned in a very nice quarter. Inflationary pressures remain in place, and likely will for some time, but the company was largely able to make up for these additional costs with higher prices. Instead of hampering demand, volumes were up in nearly every segment.

Strong performance in times of difficulty is one of the main reasons that Procter & Gamble has raised its dividend for more than six decades. The stock may not offer much in the way of income at the moment, with just a 2.2% yield, but Procter & Gamble’s long-term track record shows that it can handle a variety of headwinds and continue to distribute higher dividends each year.

Shares aren’t cheap at more than 27 times earnings estimates for the 2022 fiscal year, but stocks of quality companies rarely are. Investors looking for a consumer staple company may want to consider Procter & Gamble, in my opinion.


I am/ we are currently short the stocks mentioned. Click for the complete disclosure
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