Procter & Gamble Faces FX Headwinds Despite Positive Volume Growth in Q4
Procter & Gamble (NYSE:PG) saw positive volume growth for the first time in nearly two years in Q4 (June), even as prices continued to rise. However, foreign exchange headwinds neutralized the volume and price growth, resulting in flat year-over-year revenue growth, which slightly missed analyst expectations. Shares of the consumer staples giant, which closed at an all-time high yesterday, are feeling the pressure today.
PG’s initial FY25 guidance was relatively modest, aligning with analyst forecasts. The company projected adjusted EPS of $6.91-7.05 and revenue growth of +2-4%. Notably, PG forecasted organic sales growth of +3-5%. Before FY24, PG consistently delivered organic sales growth of around +6-7%. Investors may have hoped that the underwhelming +4% organic growth in FY24 was a one-off due to various challenges like FX impacts and persistent inflation. However, PG’s FY25 guidance suggests a more lasting shift among consumers toward value-seeking, reducing their overall basket size.
In Q4, PG reported adjusted EPS of $1.40, slightly beating analyst estimates and breaking its streak of double-digit beats. Top-line growth was flat at $20.53 billion as FX impacts shaved 2 points off net sales growth.
Volumes increased by 1% year-over-year, led by Grooming, Health Care, and Fabric & Home Care, which each saw a 2% rise. Conversely, Beauty and Baby, Feminine & Family Care experienced a 1% volume decline. Geographically, nearly all markets outside China and the Middle East showed solid volume growth, including a 4% jump in North America. PG anticipates a sluggish recovery in China and ongoing headwinds in the Middle East.
Despite the strength in many of PG’s markets, the company expects a volatile environment. Commodity costs and FX headwinds are estimated to reduce FY25 EPS by $0.20, or 3 points of growth. These headwinds are a slight improvement over FY24. PG plans to double down on productivity initiatives, including ‘Supply Chain 3.0’, to mitigate macroeconomic challenges.
The market was eager for PG’s volumes to turn positive, especially given favorable year-over-year comparisons in recent quarters. While this occurred in Q4, it came with some disappointments, including a mild revenue miss and underwhelming organic growth guidance. Following highs for PG shares, these issues were magnified, resulting in a sell-the-news reaction today.
Despite these challenges, there are still reasons to be optimistic about PG. Its brands enjoy exceptional loyalty, especially in categories where quality often outweighs savings. Commodity cost headwinds are gradually easing, offering some margin relief. PG also offers an attractive 2.4% dividend yield and a repurchase plan equating to around 1% of its market cap. Therefore, significant pullbacks could present good buying opportunities.
This article first appeared on GuruFocus.
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