Procter & Gamble (P&G) reported its fiscal fourth-quarter earnings on Tuesday, exceeding Wall Street's expectations in terms of earnings per share but falling short in revenue, largely due to disappointing demand in China. This mixed performance has led to a 5% drop in the company's stock during morning trading.
P&G reported adjusted earnings per share (EPS) of $1.40, surpassing the expected $1.37. However, the company's revenue of $20.53 billion fell short of the anticipated $20.74 billion. Despite this, P&G's net income attributable to the company was $3.14 billion, or $1.27 per share, down from $3.38 billion, or $1.37 per share, a year earlier.
Net sales remained essentially flat compared to the previous year. Organic revenue, which excludes foreign currency, acquisitions, and divestitures, increased by 2% in the quarter. Notably, P&G's volume increased for the first time in over two years, rising by 1% due to stronger demand for grooming, health care, and fabric and home-care products.
While P&G saw growth in several segments, others struggled. The grooming, health care, and fabric and home-care segments each reported a 2% volume growth. In contrast, the beauty and baby, feminine, and family care divisions saw a 1% volume decline, impacted by lower demand for high-end SK-II skincare products and diapers.
In North America, P&G is gaining market share, with volume rising 4% in the company's home market. According to CEO Jon Moeller, consumers in North America are not trading down to private label goods, as the market share for these goods remains flat. Additionally, promotions are still 15% below pre-pandemic levels.
P&G's performance in China, its second-largest market, has been lackluster. Although the company did not disclose specific volume figures for the region, organic sales in Greater China declined by 9%. The weak demand in China significantly contributed to the volume declines in P&G's beauty business. Analysts like Kaumil Gajrawala from Jefferies have downgraded P&G's stock to hold, citing weaker consumption in the US and uncertainty regarding when beauty sales in China will recover.
For fiscal 2025, P&G anticipates core net earnings per share in the range of $6.91 to $7.05, up from the previous forecast of $2.15 to $2.35 per share. The company also reiterated its revenue outlook of 2% to 4% growth.
CEO Jon Moeller, in an interview with Yahoo Finance, acknowledged the cautious nature of US consumers but noted that private label goods' volume remains unchanged, indicating that consumers are not trading down significantly. Moeller also highlighted that unit volumes in the US have shown growth over the past five quarters.
P&G is focusing on strategic moves to stabilize its business amidst declining demand for its Covid-related products. The company has launched a broad cost-cutting initiative aiming for at least $4 billion in savings by the end of 2024. Additionally, P&G has announced a multi-year plan to slash costs further, with the first phase targeting $1.5 billion in savings by 2027.
P&G is also strengthening its position in the healthcare sector following its $43 billion acquisition of Seagen last year. This acquisition is expected to bolster P&G's focus on cancer treatment, with Seagen's approved cancer products contributing significantly to the company's revenue in the recent quarter.
Despite the challenges, P&G remains optimistic about its future. The company's full-year organic sales growth is projected to be between 3% and 5%, and full-year EPS growth is expected to range from $6.91 to $7.05. However, analysts caution that weaker consumption trends in the US and uncertain recovery in China may pose challenges ahead.
