Procter & Gamble Earnings: Sales Slowdown Spooks Investors

Key Morningstar Metrics for Procter & Gamble

• Fair Value Estimate: $143.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Low

What We Thought of Procter & Gamble’s Earnings

The market dogged Procter & Gamble PG after it closed the book on its second consecutive quarter of tepid sales performance, up just 2% on an organic basis in its fiscal fourth quarter (versus 3% growth in the prior quarter and the mid-to-high-single-digit-percentage jumps that have more recently characterized the business). Shares were down around 5%-6% in intraday trading.

However, we expected sales growth would slow. Indeed, P&G’s fiscal 2024 results and fiscal 2025 guidance for 3%-5% organic sales growth against 5%-7% EPS growth generally square with our preprint estimates, rendering our $143 per share fair value estimate largely unchanged (beyond time value). Although we still don’t view the stock as a bargain, trading at a 10%-15% premium to our intrinsic valuation, we think investors should keep it on their radar, in case trepidation around intensifying competition and a waning macro landscape offer a more attractive entry point.

We attribute the stock’s fall to continuing angst about the strength of consumer spending. Management insisted it isn’t seeing material cracks, pointing to private-label share similar to pre-pandemic levels and continued volume growth (up 1% in the fourth quarter, versus flat in the third). While these pressures are likely to persist, we surmise P&G should remain above the fray, given its prudent strategic aims—diligently spending behind its brands and capabilities to ensure its products stay top of mind with retailers and consumers, supporting its competitive edge. This underpins our forecast for P&G to direct around 13% of sales (more than $13 billion annually) on average to research, development, and marketing over our explicit forecast.