P&G's stock pulls back from a record as profit beats but sales surprisingly fall

By Tomi Kilgore

Stock heads for biggest drop in 2 years and is in danger of snapping the longest monthly win streak in 6 years

Shares of Procter & Gamble Co. were hit hard Tuesday, after the consumer packaged-goods company reported fiscal fourth-quarter profit that beat expectations but also a surprise dip in sales.

While volume increased 1%, amid growth in grooming, healthcare and fabric and home care products, and prices also rose by 1%, sales were hurt by unfavorable foreign-currency moves.

The stock (PG) dropped 56% in morning trading, after closing Monday at a record high. It was on track to suffer the biggest one-day selloff since it sank 6.2% on July 29, 2022.

The selloff put the stock in danger of snapping a six-month win streak, which would be the longest such streak since the seven-month stretch that ended in November 2018. The stock was currently down 3.2% month to date.

The company, with brands including Tide, Pampers, Gillette and Oral-B, said net income for the quarter to June 30 fell to $3.14 billion, or $1.27 a share, from $3.38 billion, or $1.37 a share, in the same period a year ago.

Excluding nonrecurring items, core earnings per share of $1.40 topped the FactSet consensus of $1.37, to mark the eighth straight quarterly profit beat.

Net sales slipped 0.1% to $20.53 billion from $20.55 billion, while the FactSet consensus called for a rise to $20.72 billion, to mark the third straight miss.

Prices increased by 1%, and volume was up 1% as growth in grooming, healthcare and fabric and home care products offset weakness in beauty and baby, feminine and family care.

Gross margin improved to 49.6% from 48.4%, helped by savings from productivity improvements, lower commodity costs and benefits of higher pricing.

When asked on the post-earnings call with analysts how P&G saw the health of the consumer, given recent commentary from other companies that highlighted how they were struggling, P&G said that while it didn't mean to "discredit" those descriptions, "we generally don't see the dynamic that some are describing."

Also read: McDonald's to offer more value meals to entice struggling consumers.

If consumers were struggling, they would normally trade down to private-label products from branded products, but P&G said, according to a FactSet transcript, that private-label market share was generally in line with pre-COVID levels in North America and Europe, and have not changed much in recent quarters.

The company noted its products are in less discretionary categories, so aren't affected as much by consumers who have had to modify their purchase behavior in response to a tighter wallet.

P&G's products tend to be in "daily use" categories where performance drives brand choice.

"We typically have the best-performing product in the market, at least that's our objective, and as a result, we're not seeing significant consumer-driven impact," a P&G executive said.

For fiscal 2025, P&G expects core EPS of $691. to $7.05, which surrounds the current FactSet EPS consensus of $6.97.

The company expects sales growth in the range of 2% to 4%, while the current FactSet sales consensus of $86.88 billion implies a 3.4% rise.

For the first quarter, P&G expects to book a $750 million charge for accumulated currency translation losses as the divestiture of its business in Argentina was completed on July 1.

The stock has still climbed 9% year to date, while the Consumer Staples Select Sector SPDR ETF (XLP) has gained 8% and the S&P 500 index has advanced 13.8%.

-Tomi Kilgore

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07-30-24 1111ET

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