Procter & Gamble (PG, Financial) faced a muted market response after narrowly missing analyst revenue estimates for Q1, mainly due to economic challenges in China and the Middle East. The company's consolidated volumes remained flat compared to the previous year, slightly down from a 1% increase in the prior quarter. Despite this, PG reaffirmed its financial targets for FY25. Excluding currency fluctuations and M&A impacts, volumes and sales were up 1% and 2% year-over-year, respectively.
Key highlights of Q1 performance include:
- Grooming and Fabric & Home Care saw volume growth of 4% and 1%, respectively. However, Beauty, Health Care, and Baby, Feminine & Family Care experienced slight volume declines year-over-year. This, combined with unfavorable foreign exchange impacts, led to a 0.6% revenue drop to $21.74 billion, missing analyst expectations.
- The Asia Pacific, Middle East, and Africa regions were the main contributors to the lackluster performance, with organic sales declining slightly. Notably, China's organic sales dropped by 16%. Management anticipates a few more quarters before China returns to growth. Conversely, North America, Europe, and Latin America showed positive organic sales growth, partially offsetting weaknesses in other regions.
- PG exceeded bottom-line estimates for the second consecutive quarter, with EPS rising 5% year-over-year to $1.93. This was driven by productivity improvements and a 30 basis point increase in core operating margins, despite challenges from commodity costs and foreign exchange.
- Looking ahead, PG expects continued macroeconomic volatility but maintained its FY25 guidance, forecasting adjusted EPS of $6.91-7.05, revenue growth of 2-4%, and organic revenue growth of 3-5%. The company kept its EPS outlook unchanged, despite a smaller commodity cost headwind, due to other operating income pressures.
Investor concerns are heightened due to volatility in China and the Middle East. However, excluding these regions, PG's performance was solid, with North America, Europe, and Latin America achieving healthy organic sales growth. The company's pricing strategy supports brand loyalty and demand for quality essentials, even amid inflationary pressures. Although uncertainty over easing headwinds may impact PG's stock, the company's strong market share momentum in the U.S. and key markets positions it as a promising long-term investment.
