Procter & Gamble Cleans Up in Fiscal 2021
The company did so even against pronounced inflationary headwinds.
After announcing its pending change in the CEO suite a day prior (with COO and vice chairman Jon Moeller set to succeed CEO David Taylor in November), the market was acutely focused on how wide-moat Procter & Gamble (PG) fared over the last three months, as it lapped pronounced consumer stock-up in the year-ago period and a rash of inflationary headwinds in the current environment that show no signs of moderating. While P&G was not immune to stepped-up costs (which resulted in a 210-basis-point retraction in adjusted operating margins in the quarter to around 19%, as higher commodities proved a 240-basis-point drag), we believe the firm’s top-line marks were still stellar, up 4% on an organic basis (reflecting a balanced contribution from higher prices, favorable mix, and increased volumes), on top of 6% underlying growth in the same period a year ago.
We don’t believe this performance is a byproduct of the pandemic backdrop, though (which has seen consumers place an outsize emphasis on cleaning and disinfecting), but stems from the strategic course P&G embarked on more than seven years ago (right-sizing its category and geographic reach by shedding more than 100 brands to ensure resources were being effectively allocated to the highest-return opportunities, while maintaining a stringent focus on costs). Evidencing our stance, the fourth quarter marked P&G’s 12th consecutive period of at least mid-single-digit organic sales growth, and we don’t think Moeller intends to rewrite its playbook.
With fiscal-year 2021 results generally matching our forecast and fiscal 2022 guidance (2%-4% reported sales and 6%-9% EPS growth) bang in line with our pre-print outlook (2.9% and 6.4%, respectively) our $118 fair value estimate shouldn’t see much change--even after incorporating time value and our expectations for an uptick in U.S. corporate tax rates to 26% in calendar 2022. Shares trade at a 20% premium to intrinsic valuation, and we’d suggest investors remain on the sidelines.
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Erin Lash does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.