COVID-19 has had a mixed impact on Procter & Gamble’s business. Despite this, the company reported higher earnings in its latest quarter and increased its dividend.
There’s an old saying: “What you lose on the swings, you gain on the roundabouts.” You might say something like that about Procter & Gamble’s (P&G’s) latest results.
The COVID-19 pandemic has had offsetting effects on P&G’s business. During its third quarter, the company experienced a significant increase in demand and consumption of certain of its product categories in certain markets. It sold more health, hygiene and cleaning products primarily in North America and Europe caused partly by changing consumer habits and pantry stocking.
At the same time, it experienced declines in Greater China, Japan, and in certain channels, including travel retail, due to the economic slowdown and restricted consumer movements, as well as in some of its beauty and grooming products.
The Procter & Gamble Company (NYSE—PG) is a global leader in the consumer goods industry, focused on providing branded consumer packaged goods of superior quality and value to its customers around the world. The company’s products are sold in more than 180 countries and territories, primarily through mass merchandisers, e-commerce, grocery stores, membership clubs, department stores, distributors, wholesalers, baby stores, specialty beauty stores, high-frequency stores and pharmacies.
Virus has had no material impact
Overall, COVID-19 did not have a material net impact on the company’s third-quarter consolidated operating results. For the three months ended March 31, 2020, P&G made $3.1 billion (all figures in US dollars) in core earnings, or $1.17 a share, compared with $2.8 billion, or $1.06 a share, in the same period of 2019. The consensus forecast had called for the company to earn $1.13 a share. Also, excluding foreign exchange movements, earnings per share (EPS) rose 15 per cent to $1.22.
Earnings growth was driven primarily by a 4.6-per-cent increase in sales to $17.2 billion and an increase in the operating margin, which rose to 20.1 per cent from 19.6 per cent.
Free cash flow was $3.3 billion. This let P&G return $2.8 billion of cash to shareholders through $1.9 billion in dividend payments and $900 million of common stock buybacks in the third quarter.
P&G is a ‘dividend aristocrat’
The dividend was also increased 6.0 per cent to 79 cents a share in March, at a time when many companies have cut or eliminated their dividends. Notably, this is the 64th consecutive year the company has increased its dividend, and the 130th consecutive year it has paid a dividend.
Over the long term, P&G believes there will continue to be strong demand for categories in which it operates, particularly its products that deliver essential health, hygiene and cleaning benefits. But there may be heightened volatility in sales and, therefore, earnings during the rest of the pandemic.
Nonetheless, P&G has projected core EPS growth in the range of eight to 11 per cent in fiscal 2020 (ends June 30). The stock yields 2.7 per cent and trades at a high 23.3 times its forecast 2020 earnings of $4.95 a share. But the stock gets high marks for safety and price stability in our view, making it well suited for very conservative investors.
P&G is a buy for growth and some income.
This is an edited version of an article that was originally published for subscribers in the May 22, 2020, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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