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Procter & Gamble Co PG

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P&G Wisely Revs Up Brand Spend Despite Raging Cost Pressures; Shares Don’t Offer Investors a Bargain

Erin Lash, CFA Sector Director

Analyst Note

| Erin Lash, CFA |

In the face of well-defined challenges (namely, rampant cost pressures and supply chain constraints), wide-moat Procter & Gamble served up a solid start to the fiscal year. Organic sales edged up 4% in the first quarter (on top of 9% marks in the year-ago period), reflecting a balanced contribution from higher prices, favorable mix, and increased volumes. Gross and operating margins contracted to the tune of 370 and 260 basis points, respectively, to 49% and 24.7%. But we attribute this erosion in profits to higher commodities, which were a 350-basis-point hit to gross margins in the period, as well as increased transportation costs, which served as an incremental 50-basis-point drag. Although these pressures look unlikely to abate--the company ramped up its full-year expectations for the combination of commodities and freight to total a $2.3 billion headwind in fiscal 2022, from its $1.9 billion outlook less than three months ago--we continue to believe that P&G will employ a multi-pronged approach to combating these issues, including passing through a portion of these higher costs to consumers, while also pursuing additional productivity initiatives, which we view as prudent. And despite current inflationary headwinds, we’re encouraged that management’s rhetoric continues to stress the crucial nature of brand investments.

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Company Profile

Business Description

Since its founding in 1837, Procter & Gamble has become one of the world's largest consumer product manufacturers, generating more than $75 billion in annual sales. It operates with a lineup of leading brands, including 21 that generate more than $1 billion each in annual global sales, such as Tide laundry detergent, Charmin toilet paper, Pantene shampoo, and Pampers diapers. P&G sold its last remaining food brand, Pringles, to Kellogg in calendar 2012. Sales outside its home turf represent around 55% of the firm's consolidated total, with around one third coming from emerging markets.

One Procter and Gamble Plaza
Cincinnati, OH, 45202
T +1 513 983-1100
Sector Consumer Defensive
Industry Household & Personal Products
Most Recent Earnings Sep 30, 2021
Fiscal Year End Jun 30, 2022
Stock Type Classic Growth
Employees 101,000