PG shares slide following revenue miss

Procter & Gamble (PG) delivered a mixed Q3 2024 earnings report, with core earnings per share (EPS) coming in at $1.93, surpassing analyst expectations of $1.90 and representing a 5% year-over-year increase. However, net sales slightly missed estimates at $21.74 billion, down 0.6% year-over-year and below the $21.96 billion expected. The company attributed this decline primarily to foreign currency headwinds and ongoing weaknesses in key international markets, particularly in China.

Breaking down performance by product categories, the Beauty segment saw a disappointing 2% decline in organic sales, mainly due to a 20% drop in Skin Care, driven by weaker sales of the premium SK-II brand. Grooming saw a 3% increase in organic sales, with innovation-driven volume growth partially offset by an unfavorable geographic mix. Health Care saw a 4% rise in organic sales, supported by growth in Personal Health Care and Oral Care, although China’s weakness negatively impacted the latter.

Fabric & Home Care saw a 3% organic sales increase, driven by strength in North America and Europe. Meanwhile, the Baby, Feminine & Family Care segment was flat in terms of organic sales, with Baby Care declining mid-single digits due to volume weakness, partially offset by a favorable product mix. Feminine Care and Family Care both showed low-to-mid single-digit growth, supported by pricing increases and product mix.

In terms of guidance, PG maintained its fiscal year 2025 forecast for core EPS growth of 5% to 7%, targeting $6.91 to $7.05 per share, in line with expectations. The company also reiterated its outlook for organic revenue growth in the range of 3% to 5%, signaling confidence in its ability to drive growth despite macroeconomic challenges. However, it warned of a $200 million commodity cost headwind for the fiscal year, equivalent to an $0.08 EPS impact.

PG highlighted its strong cash flow generation, with operating cash flow reaching $4.3 billion for the quarter and free cash flow productivity at 82%. The company returned $4.4 billion to shareholders through dividends and share repurchases, further signaling confidence in its long-term growth strategy. However, the company did acknowledge the challenging macroeconomic environment, particularly the continued weakness in China, which it expects to persist for several quarters.

On the margins front, gross margin came in at 52.1%, slightly missing the estimate of 52.4%. Core operating margin improved by 30 basis points year-over-year, driven by productivity savings and pricing actions, but partially offset by higher commodity costs and unfavorable product mix. Selling, general, and administrative expenses (SG&A) also decreased slightly, contributing to the overall improvement in profitability.

Looking ahead, PG maintained its capital spending estimate at 4% to 5% of net sales for fiscal 2025 and expects free cash flow productivity to remain strong at around 90%. The company also plans to pay out approximately $10 billion in dividends and repurchase $6 to $7 billion in shares over the course of the fiscal year, reflecting its continued commitment to returning value to shareholders.

Overall, PG’s Q3 earnings report reflects a resilient business model despite the pressures of currency headwinds and weaker international markets, particularly in China. The company’s guidance remains intact, but it faces ongoing challenges from commodity costs and slower-than-expected growth in key product categories like Beauty and Baby Care. However, its strong cash flow and focus on premium products continue to provide a solid foundation for future growth.