Q4 ’23: Net Sales +5%; Organic Sales +8%; Diluted and Core EPS +13%
FY ’23: Net Sales +2%; Organic Sales +7%; Diluted and Core EPS +2%
CINCINNATI--(BUSINESS WIRE)-- The Procter & Gamble Company (NYSE:PG) reported fourth quarter and fiscal year 2023 results.
“The April-June quarter provided a very strong finish to fiscal year 2023 – top-line growth, bottom-line growth, and cash generation,” said Jon Moeller, Chairman of the Board, President and Chief Executive Officer. “The team met or exceeded our going-in plans for sales, earnings, and cash in a difficult operating environment and despite significant cost headwinds. As we look forward to fiscal 2024, we expect to deliver strong organic sales growth, EPS growth and free cash flow productivity – each in-line with our long-term growth algorithm, despite continued macroeconomic and geopolitical challenges. We remain committed to our strategy – a focus on daily use categories where performance drives brand choice, superiority (of product, package, communication, go-to-market execution and value), productivity, constructive disruption, and an agile and accountable organization structure and culture – all in pursuit of sustainable, balanced growth and value creation.”
Fiscal Year ($ billions, except EPS)
GAAP
2023
2022
% Change
Non-GAAP*
Net Sales
$82.0
$80.2
2%
Organic Sales
n/a
7%
Diluted EPS
$5.90
$5.81
Core EPS
Fourth Quarter ($ billions, except EPS)
$20.6
$19.5
5%
8%
$1.37
$1.21
13%
* Please refer to Exhibit 1 - Non-GAAP Measures for the definition and reconciliation of these measures to the related GAAP measures.
Fiscal Year 2023 Results
The Company reported fiscal year 2023 net sales of $82.0 billion, an increase of two percent versus the prior year. Organic sales, which exclude the impacts of foreign exchange and acquisitions and divestitures, increased seven percent. The organic sales growth was due to a nine percent increase from higher pricing and a one percent increase from favorable mix, partially offset by a three percent decrease in shipment volumes.
Diluted net earnings per share were $5.90, an increase of two percent versus prior year. Currency-neutral net EPS increased 11% versus the prior year EPS.
The Company generated operating cash flow of $16.8 billion and net earnings of $14.7 billion for the fiscal year. Adjusted free cash flow productivity was 95%, which is calculated as operating cash flow less capital spending, as a percentage of net earnings. The Company returned over $16 billion of value to shareholders in fiscal 2023 via $9 billion in dividend payments and $7.4 billion of share repurchases. With the dividend increase in April 2023, this marks the 67th consecutive year that P&G has increased its dividend and the 133rd consecutive year that P&G has paid a dividend since its incorporation in 1890.
April-June Quarter Results
The Company reported fiscal year 2023 fourth quarter net sales of $20.6 billion, an increase of five percent versus the prior year. Organic sales, which exclude the impacts of foreign exchange and acquisitions and divestitures, increased eight percent. The organic sales growth was due to a seven percent increase from higher pricing and a two percent increase from favorable mix, partially offset by a one percent decrease in shipment volumes.
Diluted net earnings per share were $1.37, an increase of 13% versus prior year. Operating cash flow was $5.3 billion and net earnings were $3.4 billion, with adjusted free cash flow productivity of 136%.
April-June Quarter Business Discussion
April - June 2023
Volume
Foreign
Exchange
Price
Mix
Other (2)
Organic
Sales
Net Sales Drivers (1)
Beauty
—%
(4)%
4%
(1)%
11%
Grooming
(5)%
9%
3%
Health Care
(3)%
(2)%
6%
Fabric & Home Care
Baby, Feminine & Family Care
Total P&G
(1)
Net sales percentage changes are approximations based on quantitative formulas that are consistently applied.
(2)
Other includes the sales mix impact from acquisitions and divestitures and rounding impacts necessary to reconcile volume to net sales.
Diluted net earnings per share were $1.37 for the quarter, an increase of 13% versus the prior year. This was driven by an increase in net sales, an increase in operating margin and a reduction in shares outstanding. Currency-neutral net EPS increased 22% versus the prior year.
Gross margin for the quarter increased 380 basis points versus year ago, 450 basis points on a currency-neutral basis. The increase was driven by 340 basis points of pricing benefit and 290 basis points of productivity savings. These were partially offset by 110 basis points of contract material price increases net of a modest reduction in commodities, 20 basis points of product and package reinvestments and 50 basis points of negative product mix and other impacts.
Selling, general and administrative expense (SG&A) as a percentage of sales increased 190 basis points versus the prior year, 140 basis points on a currency-neutral basis. The increase was driven by 470 basis points of marketing and overhead investments, largely offset by 190 basis points of leverage benefit due to increased sales and 140 basis points of overhead savings and marketing efficiencies.
Operating margin for the quarter increased 190 basis points versus the prior year, 310 basis points on a currency-neutral basis.
Fiscal Year 2024 Guidance
P&G expects fiscal year 2024 all-in sales growth in the range of three to four percent versus the prior year. Foreign exchange is expected to be a headwind of approximately one percentage point to all-in sales growth. The Company expects organic sales growth in the range of four to five percent.
P&G expects fiscal 2024 diluted net earnings per share growth in the range of six to nine percent versus fiscal 2023 EPS of $5.90. This outlook equates to a range of $6.25 to $6.43 per share, with a mid-point estimate of $6.34, or an increase of 7.5%.
The Company said its current outlook estimates a net benefit of around $400 million after-tax from favorable commodity costs net of unfavorable foreign exchange.
The Company is not able to reconcile its forward-looking non-GAAP cash flow and tax rate measures without unreasonable efforts given the unpredictability of the timing and amounts of discrete items, such as acquisitions, divestitures, or impairments, which could significantly impact GAAP results.
P&G said it expects a core effective tax rate to be approximately 20% in fiscal 2024.
Capital spending is estimated to be approximately five percent of fiscal 2024 net sales.
P&G is targeting adjusted free cash flow productivity of 90% and expects to pay more than $9 billion in dividends and to repurchase $5 to $6 billion of common shares in fiscal 2024.
Forward-Looking Statements
Certain statements in this release, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "future," "opportunity," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result" and similar expressions. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, except to the extent required by law.
Risks and uncertainties to which our forward-looking statements are subject include, without limitation: (1) the ability to successfully manage global financial risks, including foreign currency fluctuations, currency exchange or pricing controls and localized volatility; (2) the ability to successfully manage local, regional or global economic volatility, including reduced market growth rates, and to generate sufficient income and cash flow to allow the Company to effect the expected share repurchases and dividend payments; (3) the ability to manage disruptions in credit markets or to our banking partners or changes to our credit rating; (4) the ability to maintain key manufacturing and supply arrangements (including execution of supply chain optimizations and sole supplier and sole manufacturing plant arrangements) and to manage disruption of business due to various factors, including ones outside of our control, such as natural disasters, acts of war (including the Russia-Ukraine War) or terrorism or disease outbreaks; (5) the ability to successfully manage cost fluctuations and pressures, including prices of commodities and raw materials and costs of labor, transportation, energy, pension and healthcare; (6) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to changing consumer habits, evolving digital marketing and selling platform requirements and technological advances attained by, and patents granted to, competitors; (7) the ability to compete with our local and global competitors in new and existing sales channels, including by successfully responding to competitive factors such as prices, promotional incentives and trade terms for products; (8) the ability to manage and maintain key customer relationships; (9) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about safety, quality, ingredients, efficacy, packaging content, supply chain practices or similar matters that may arise; (10) the ability to successfully manage the financial, legal, reputational and operational risk associated with third-party relationships, such as our suppliers, contract manufacturers, distributors, contractors and external business partners; (11) the ability to rely on and maintain key company and third-party information and operational technology systems, networks and services and maintain the security and functionality of such systems, networks and services and the data contained therein; (12) the ability to successfully manage uncertainties related to changing political conditions and potential implications such as exchange rate fluctuations and market contraction; (13) the ability to successfully manage current and expanding regulatory and legal requirements and matters (including, without limitation, those laws and regulations involving product liability, product and packaging composition, intellectual property, labor and employment, antitrust, privacy and data protection, tax, the environment, due diligence, risk oversight, accounting and financial reporting) and to resolve new and pending matters within current estimates; (14) the ability to manage changes in applicable tax laws and regulations; (15) the ability to successfully manage our ongoing acquisition, divestiture and joint venture activities, in each case to achieve the Company's overall business strategy and financial objectives, without impacting the delivery of base business objectives; (16) the ability to successfully achieve productivity improvements and cost savings and manage ongoing organizational changes while successfully identifying, developing and retaining key employees, including in key growth markets where the availability of skilled or experienced employees may be limited; (17) the ability to successfully manage the demand, supply and operational challenges, as well as governmental responses or mandates, associated with a disease outbreak, including epidemics, pandemics or similar widespread public health concerns; (18) the ability to manage the uncertainties, sanctions and economic effects from the war between Russia and Ukraine; and (19) the ability to successfully achieve our ambition of reducing our greenhouse gas emissions and delivering progress towards our environmental sustainability priorities. For additional information concerning factors that could cause actual results and events to differ materially from those projected herein, please refer to our most recent 10-K, 10-Q and 8-K reports.
About Procter & Gamble
P&G serves consumers around the world with one of the strongest portfolios of trusted, quality, leadership brands, including Always®, Ambi Pur®, Ariel®, Bounty®, Charmin®, Crest®, Dawn®, Downy®, Fairy®, Febreze®, Gain®, Gillette®, Head & Shoulders®, Lenor®, Olay®, Oral-B®, Pampers®, Pantene®, SK-II®, Tide®, Vicks®, and Whisper®. The P&G community includes operations in approximately 70 countries worldwide. Please visit https://www.pg.com for the latest news and information about P&G and its brands. For other P&G news, visit us at https://www.pg.com/news.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Consolidated Earnings Information
Three Months Ended June 30
Fiscal Year Ended June 30
% Chg
NET SALES
$
20,553
19,515
82,006
80,187
Cost of products sold
10,613
10,802
42,760
42,157
1%
GROSS PROFIT
9,940
8,713
14%
39,246
38,030
Selling, general and administrative expense
5,778
5,115
21,112
20,217
OPERATING INCOME
4,162
3,598
16%
18,134
17,813
Interest expense
(240
)
(115
109%
(756
(439
72%
Interest income
116
21
452%
307
51
502%
Other non-operating income, net
195
146
34%
668
570
17%
EARNINGS BEFORE INCOME TAXES
4,233
3,650
18,353
17,995
Income taxes
841
592
42%
3,615
3,202
NET EARNINGS
3,392
3,058
14,738
14,793
Less: Net earnings/(loss) attributable to non controlling interests
8
6
33%
85
67%
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE
3,384
3,052
14,653
14,742
EFFECTIVE TAX RATE
19.9
%
16.2
19.7
17.8
NET EARNINGS PER COMMON SHARE: (1)
Basic
1.40
1.24
6.07
6.00
Diluted
1.37
1.21
5.90
5.81
DIVIDENDS PER COMMON SHARE
0.9407
0.9133
3.6806
3.5227
Diluted Weighted Average Common Shares Outstanding
2,477.5
2,523.3
2,483.9
2,539.2
COMPARISONS AS A % OF NET SALES
Basis Pt Change
Gross margin
48.4
44.6
380
47.9
47.4
50
28.1
26.2
190
25.7
25.2
Operating margin
20.3
18.4
22.1
22.2
(10)
Earnings before income taxes
20.6
18.7
22.4
—
Net earnings
16.5
15.7
80
18.0
(40)
Net earnings attributable to Procter & Gamble
15.6
90
17.9
(50)
Basic net earnings per common share and Diluted net earnings per common share are calculated on Net earnings attributable to Procter & Gamble.
Three Months Ended June 30, 2023
Versus Year
Ago
Earnings/(Loss) Before
Income Taxes
Net Earnings/(Loss)
$3,746
$830
$648
12%
1,656
425
10%
345
2,590
405
299
7,241
1,684
1,311
20%
5,156
1,250
37%
967
40%
Corporate
164
N/A
(361)
(178)
Total Company
$20,553
$4,233
$3,392
(Percent Change vs. Year Ago) (1)
Volume with
Acquisitions &
Divestitures
Volume Excluding
Growth
Fiscal Year Ended June 30, 2023
$15,008
$4,009
$3,178
6,419
1,806
1,461
11,226
2,759
2,125
28,371
6,303
4,828
4,623
3,545
765
(1,147)
(399)
$82,006
$18,353
$14,738
(7)%
Consolidated Statements of Cash Flows
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR
7,214
10,288
OPERATING ACTIVITIES
Depreciation and amortization
2,714
2,807
Loss on early extinguishment of debt
Share-based compensation expense
545
528
Deferred income taxes
(453
(402
Loss/(gain) on sale of assets
(40
(85
Change in accounts receivable
(307
(694
Change in inventories
(119
(1,247
Change in accounts payable and accrued and other liabilities
313
1,429
Change in other operating assets and liabilities
(1,107
(635
Other
564
229
TOTAL OPERATING ACTIVITIES
16,848
16,723
INVESTING ACTIVITIES
Capital expenditures
(3,062
(3,156
Proceeds from asset sales
46
110
Acquisitions, net of cash acquired
(765
(1,381
Other investing activity
281
3
TOTAL INVESTING ACTIVITIES
(3,500
(4,424
FINANCING ACTIVITIES
Dividends to shareholders
(8,999
(8,770
Additions to short-term debt with original maturities of more than three months
17,168
10,411
Reductions in short-term debt with original maturities of more than three months
(13,031
(11,478
Net additions/(reductions) to other short-term debt
(3,319
917
Additions to long-term debt
3,997
4,385
Reductions of long-term debt
(1,878
(2,343
Treasury stock purchases
(7,353
(10,003
Impact of stock options and other
1,269
2,005
TOTAL FINANCING ACTIVITIES
(12,146
(14,876
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(170
(497
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
1,032
(3,074
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR
8,246
Condensed Consolidated Balance Sheets
June 30, 2023
June 30, 2022
Cash and cash equivalents
Accounts receivable
5,471
5,143
Inventories
7,073
6,924
Prepaid expenses and other current assets
1,858
2,372
TOTAL CURRENT ASSETS
22,648
21,653
PROPERTY, PLANT AND EQUIPMENT, NET
21,909
21,195
GOODWILL
40,659
39,700
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET
23,783
23,679
OTHER NONCURRENT ASSETS
11,830
10,981
TOTAL ASSETS
120,829
117,208
Accounts payable
14,598
14,882
Accrued and other liabilities
10,929
9,554
Debt due within one year
10,229
8,645
TOTAL CURRENT LIABILITIES
35,756
33,081
LONG-TERM DEBT
24,378
22,848
DEFERRED INCOME TAXES
6,478
6,809
OTHER NONCURRENT LIABILITIES
7,152
7,616
TOTAL LIABILITIES
73,764
70,354
TOTAL SHAREHOLDERS' EQUITY
47,065
46,854
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
The Procter & Gamble Company
Exhibit 1: Non-GAAP Measures
The following provides definitions of the non-GAAP measures used in Procter & Gamble's July 28, 2023, earnings release and the reconciliation to the most closely related GAAP measure. We believe that these measures provide useful perspective of underlying business trends (i.e., trends excluding non-recurring or unusual items) and results and provide a supplemental measure of year-on-year results. The non-GAAP measures described below are used by management in making operating decisions, allocating financial resources and for business strategy purposes. These measures may be useful to investors, as they provide supplemental information about business performance and provide investors a view of our business results through the eyes of management. These measures are also used to evaluate senior management and are a factor in determining their at-risk compensation. These non-GAAP measures are not intended to be considered by the user in place of the related GAAP measure, but rather as supplemental information to our business results. These non-GAAP measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted. The Company is not able to reconcile its forward-looking non-GAAP cash flow and tax rate measures because the Company cannot predict the timing and amounts of discrete items such as acquisition and divestitures, which could significantly impact GAAP results.
Organic sales growth: Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. Management believes this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis. This measure is used in assessing the achievement of management goals for at-risk compensation.
Currency-neutral operating margin: Currency-neutral operating margin is a measure of the Company's operating margin excluding the incremental current year impact of foreign exchange. Management believes this non-GAAP measure provides a supplemental perspective to the Company’s operating efficiency over time.
Currency-neutral gross margin: Currency-neutral gross margin is a measure of the Company's gross margin excluding the incremental current year impact of foreign exchange. Management believes this non-GAAP measure provides a supplemental perspective to the Company’s operating efficiency over time.
Currency-neutral selling, general and administrative (SG&A) expense as a percentage of net sales: Currency-neutral SG&A expense as a percentage of net sales is a measure of the Company's selling, general and administrative expenses excluding the incremental current year impact of foreign exchange. Management believes this non-GAAP measure provides a supplemental perspective to the Company's operating efficiency over time.
Core EPS: Core earnings per share, or Core EPS, is a measure of the Company's diluted net earnings per common share excluding items that are not judged by management to be part of the Company's sustainable results or trends. Management views this non-GAAP measure as a useful supplemental measure of Company performance over time. This measure is also used in assessing the achievement of management goals for at-risk compensation. For the fiscal years ended June 30, 2023 and 2022, there were no adjustments to or reconciling items for diluted EPS.
Currency-neutral EPS: Currency-neutral EPS is a measure of the Company's diluted EPS excluding the incremental current year impact of foreign exchange. Management views this non-GAAP measure as a useful supplemental measure of Company performance over time.
Adjusted free cash flow: Adjusted free cash flow is defined as operating cash flow less capital spending and excluding payments for the transitional tax resulting from the comprehensive U.S. legislation commonly referred to as the Tax Cuts and Jobs Act in December 2017 (the "U.S. Tax Act"). Adjusted free cash flow represents the cash that the Company is able to generate after taking into account planned maintenance and asset expansion. Management views adjusted free cash flow as an important measure because it is one factor used in determining the amount of cash available for dividends, share repurchases, acquisitions and other discretionary investments.
Adjusted free cash flow productivity: Adjusted free cash flow productivity is defined as the ratio of adjusted free cash flow to net earnings. Management views adjusted free cash flow productivity as a useful measure to help investors understand P&G’s ability to generate cash. Adjusted free cash flow productivity is used by management in making operating decisions, in allocating financial resources and for budget planning purposes. Adjusted free cash flow productivity is also used in assessing the achievement of management goals for at-risk compensation.
Reconciliation of Non-GAAP Measures
Three Months Ended
COST OF PRODUCTS SOLD
GROSS MARGIN
CURRENCY IMPACT TO GROSS MARGIN
0.7
CURRENCY-NEUTRAL GROSS MARGIN
49.1
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AS A % OF NET SALES
CURRENCY IMPACT TO SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AS A % OF NET SALES
(0.5
)%
CURRENCY-NEUTRAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AS A % OF NET SALES
27.6
OPERATING MARGIN
CURRENCY IMPACT TO OPERATING MARGIN
1.2
CURRENCY-NEUTRAL OPERATING MARGIN
21.5
NET EARNINGS ATTRIBUTABLE TO P&G
DILUTED NET EARNINGS PER COMMON SHARE (1)
CURRENCY IMPACT TO EARNINGS
0.11
CURRENCY-NEUTRAL EPS
1.48
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
COMMON SHARES OUTSTANDING AS OF JUNE 30, 2023
2,362.1
Diluted net earnings per share are calculated on Net earnings attributable to Procter & Gamble.
CHANGE IN CURRENT YEAR GAAP AND NON-GAAP MEASURES VERSUS PRIOR YEAR GAAP MEASURES
450
SELLING, GENERAL & ADMINISTRATIVE EXPENSE AS A % OF NET SALES
CURRENCY-NEUTRAL SELLING, GENERAL & ADMINISTRATIVE EXPENSE AS A % OF NET SALES
140
310
DILUTED EPS
13
22
Fiscal Year Ended
0.55
6.45
2,539.1
BPS
(10
2
CURRENCY NEUTRAL EPS
11
Organic sales growth:
The reconciliation of reported sales growth to organic sales is as follows:
Impact
Acquisition &
Divestiture
Impact/Other*
FY 2023
* Other includes the sales mix impact from acquisitions and divestitures and rounding impacts necessary to reconcile volume to net sales.
Net Sales Growth
Combined Foreign Exchange &
Acquisition/Divestiture Impact
FY 2024 (Estimate)
+3% to +4%
+1%
+4% to +5%
Adjusted free cash flow (dollars in millions):
Operating Cash Flow
Capital Spending
Adjusted Free Cash Flow
$5,341
$(734)
$4,607
U.S. Tax Act Payments
$16,848
$(3,062)
$225
$14,011
Adjusted free cash flow productivity (dollars in millions):
Net Earnings
Productivity
136%
95%
Category: PG-IR
P&G Media Contacts: Erica Noble, 513.271.1793 Jennifer Corso, 513.983.2570
P&G Investor Relations Contact: John Chevalier, 513.983.9974