Procter & Gamble Earnings: Margins Rebuild Even as Investments Persist; Shares Not Attractive

We think the main question coming into Procter & Gamble’s fourth quarter was whether the firm would be able to squeeze out more gains from its gross margin line, and on this mark, the company didn’t disappoint. The combination of higher prices (a 340-basis-point benefit) and productivity savings (290 basis points) drove a massive 380-basis-point jump in P&G’s fourth-quarter gross margin to 48.4% (partially offset by higher material costs and reinvestments made in products and packaging). While the absolute margin level still lags the low-50s that have historically characterized the business, this gain was a sequential acceleration from the 150-basis-point bump in its third fiscal quarter. And we surmise that P&G will continue to employ multiple levers (raising prices, extracting costs, and altering price/packs) to return margins to historic marks by fiscal 2025.