Procter & Gamble Co. Fiscal 2022 Third-Quarter Form 10-Q Summary
Business Context and Reporting Period
Procter & Gamble is a global branded consumer packaged-goods company operating in more than 180 countries and territories. Its five reportable segments are Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care.
This unaudited Form 10-Q covers the quarter and nine months ended March 31, 2022, compared with the corresponding periods ended March 31, 2021. The filing date was April 20, 2022. Although the request metadata references “2021 Q3,” the filing is for P&G’s fiscal 2022 third quarter.
Financial Performance and Key Metrics
| Metric | Three Months Ended March 31, 2022 | Year-over-Year Change | Nine Months Ended March 31, 2022 | Year-over-Year Change |
|---|---|---|---|---|
| Net sales | $19.381 billion | +7% | $60.672 billion | +6% |
| Operating income | $4.024 billion | +6% | $14.215 billion | -2% |
| Net earnings | $3.367 billion | +4% | $11.735 billion | +3% |
| Net earnings attributable to P&G | $3.355 billion | +3% | $11.690 billion | +3% |
| Diluted EPS | $1.33 | +6% | $4.59 | +5% |
| Operating cash flow | Not separately provided for the quarter | — | $13.010 billion | -$1.240 billion |
Quarterly gross margin declined 400 basis points to 46.7%, while operating margin declined 10 basis points to 20.8%. For the nine-month period, gross margin declined 390 basis points to 48.3% and operating margin declined 190 basis points to 23.4%. Higher commodity and transportation costs were the primary margin pressures; pricing and productivity savings partially offset the impact.
Quarterly SG&A decreased 7% to $5.031 billion and represented 26.0% of sales, down from 29.8%. Nine-month SG&A decreased 2% to $15.102 billion and represented 24.9% of sales, down from 27.0%.
The quarterly effective tax rate was 17.3%, compared with 16.3% in the prior-year quarter. The nine-month effective tax rate was 18.2%, down from 18.6%. Foreign exchange reduced quarterly net earnings by approximately $130 million and nine-month net earnings by approximately $110 million.
Sales Drivers and Segment Results
- Quarterly unit volume increased 3%, pricing contributed 5%, mix contributed 2%, and foreign exchange reduced sales by 3%. Organic sales increased 10%.
- Nine-month unit volume increased 3%, pricing contributed 3%, mix contributed 1%, and foreign exchange reduced sales by 1%. Organic sales increased 7%.
- Quarterly organic sales growth was 16% in Health Care, 10% in Fabric & Home Care, 10% in Baby, Feminine & Family Care, 8% in Grooming, and 3% in Beauty.
- For the nine-month period, organic sales increased 10% in Health Care, 8% in Fabric & Home Care, 6% in Grooming, 6% in Baby, Feminine & Family Care, and 3% in Beauty.
- Quarterly segment earnings increased in Beauty, Grooming, and Health Care, but declined in Fabric & Home Care and Baby, Feminine & Family Care as cost inflation compressed margins.
- Greater China experienced volume declines in several categories, primarily due to pandemic-related lockdowns, retailer conditions, and market slowdowns.
Cash Flow, Liquidity, Debt, and Capital Allocation
- Nine-month operating cash flow was $13.010 billion, compared with $14.250 billion in the prior-year period. Working capital used $865 million of cash, including $916 million for higher receivables and $1.252 billion for higher inventories.
- Capital expenditures were $2.464 billion, and acquisitions used $1.381 billion. Investing activities used $3.742 billion.
- Adjusted free cash flow was $10.771 billion, representing 92% adjusted free cash flow productivity versus net earnings. Management’s long-term target is at least 90%.
- Financing activities used $10.718 billion, including $6.508 billion of dividends and $8.753 billion of treasury stock purchases. Net debt increases provided approximately $2.7 billion.
- Cash and cash equivalents were $8.526 billion at March 31, 2022, down from $10.288 billion at June 30, 2021.
- Debt due within one year was $9.902 billion and long-term debt was $23.767 billion, for total reported debt of approximately $33.669 billion. Current liabilities exceeded current assets by approximately $10.985 billion.
- Management expects to meet short-term liquidity and operating needs primarily through operating cash flow and maintains access to commercial paper and bond markets supported by strong credit ratings and banking relationships.
- On April 20, 2022, the company stated that it expected approximately $10 billion of direct share repurchases during fiscal 2022. Repurchases may be financed with operating cash flow and short- and long-term debt and may be changed or discontinued without notice.
Material Changes, Outlook, and Risks
The principal year-over-year change was strong sales growth accompanied by significant gross-margin pressure from commodity inflation, transportation costs, supply-chain constraints, and unfavorable mix. Pricing and productivity savings mitigated but did not fully offset these pressures. The company reduced marketing and overhead spending as a percentage of sales, supporting operating income and EPS.
The filing does not provide a clear full-year net sales, EPS, or operating-margin guidance figure. Management continues to emphasize organic sales growth, productivity, pricing, cash generation, dividends, and share repurchases.
- COVID-19 continues to create uncertainty around demand, consumer behavior, labor availability, manufacturing, transportation, and retail access. Management reported no material consolidated sales or asset impairment impact to date but warned of potential future volatility.
- The Russia-Ukraine War negatively affected operations in both countries. Ukraine and Russia represented less than 1% and less than 2% of fiscal 2021 consolidated sales, respectively. P&G reduced its Russian product portfolio, stopped new capital investments, and suspended media, advertising, and promotional activity there.
- Further escalation of the war could cause supply disruptions, sanctions-related restrictions, asset impairments, working-capital write-downs, currency losses, and lower sales, earnings, and cash flow.
- Commodity, energy, freight, labor, and transportation inflation may continue to pressure gross margin and operating margin. Pricing actions could reduce consumer demand or volume.
- The Gillette indefinite-lived intangible asset remained particularly sensitive to impairment. Its fair value exceeded carrying value by approximately 5% at the latest annual testing date; management reported no triggering event during the quarter. The related carrying value was approximately $14.1 billion.
- Management stated that litigation and environmental matters are not expected to materially affect financial position, results, or cash flow based on currently available information. Tax audits remain active across approximately 70 countries and more than 150 taxable jurisdictions.
Most Important Facts to Verify
- Confirm that the applicable reporting period is the fiscal quarter ended March 31, 2022, rather than calendar 2021 Q3.
- Assess whether pricing can offset continuing commodity, freight, labor, and supply-chain inflation without causing volume or market-share losses.
- Monitor working-capital trends, particularly inventory growth, receivables, and the decline in operating cash flow.
- Evaluate leverage and refinancing needs given approximately $9.9 billion of debt due within one year and planned share repurchases.
- Track performance in Greater China, Russia, and Ukraine, including potential effects from lockdowns, sanctions, currency movements, and supply interruptions.
- Review the sensitivity of the Gillette intangible asset and Shave Care goodwill to lower growth, higher discount rates, prolonged pandemic effects, or further geopolitical deterioration.
- Verify the company’s subsequent full-year guidance, final fiscal 2022 buybacks, and any changes to dividend or capital-allocation plans.