Procter & Gamble Company: FY2022 Form 10-K Summary
Business context and reporting period
The filing is an annual report for the fiscal year ended June 30, 2022, rather than a quarterly filing for 2021 Q4. P&G sells branded consumer products in approximately 180 countries and territories through retail, e-commerce, professional and direct-to-consumer channels. Its five reportable segments are Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care.
Key financial metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $80.2 billion | $76.1 billion | 5% |
| Operating income | $17.8 billion | $18.0 billion | (1%) |
| Net earnings attributable to P&G | $14.7 billion | $14.3 billion | 3% |
| Diluted EPS | $5.81 | $5.50 | 6% |
| Core EPS | $5.81 | $5.66 | 3% |
| Operating cash flow | $16.7 billion | $18.4 billion | (9%) |
| Adjusted free cash flow | $13.8 billion | $15.8 billion | (13%) |
| Adjusted free cash flow productivity | 93% | 107% | (14 percentage points) |
Net sales growth reflected a 2% increase in unit volume, 4% favorable pricing, 1% favorable mix and a 2% unfavorable foreign-exchange impact. Organic sales increased 7%, including 2% organic volume growth. Gross margin declined 380 basis points to 47.4%, primarily from commodity costs, transportation costs and product mix, partly offset by pricing. Operating margin declined 140 basis points to 22.2%.
The effective tax rate improved to 17.8% from 18.5%. Interest expense decreased to $439 million from $502 million. Other non-operating income increased to $570 million, primarily reflecting the absence of the prior-year early debt-extinguishment loss and higher post-retirement benefit-related benefits.
Segment performance
- Beauty: Sales increased 2% to $14.7 billion; segment earnings declined 2% to $3.2 billion.
- Grooming: Sales increased 2% to $6.6 billion; earnings increased 4% to $1.5 billion. Organic sales increased 5%.
- Health Care: Sales increased 9% to $10.8 billion; earnings increased 8% to $2.0 billion. Organic sales increased 10%.
- Fabric & Home Care: Sales increased 6% to $27.6 billion; earnings declined 5% to $4.4 billion.
- Baby, Feminine & Family Care: Sales increased 5% to $19.7 billion; earnings declined 10% to $3.3 billion.
Cash flow, debt and liquidity
Capital expenditures were $3.2 billion, compared with $2.8 billion in the prior year. Acquisitions used $1.4 billion, primarily for Farmacy Beauty, Ouai and TULA. Dividends paid were $8.8 billion and share repurchases totaled $10.0 billion. The company increased its dividend per common share by 9% to $3.5227 and reported 66 consecutive years of dividend increases.
Total debt was $31.5 billion at June 30, 2022, including $8.6 billion due within one year and $22.8 billion of long-term debt. Cash and cash equivalents were $7.2 billion, down from $10.3 billion. Current liabilities exceeded current assets by $11.4 billion, largely because of short-term borrowings under the commercial paper program.
P&G reported strong credit ratings: Moody’s P-1 short-term and Aa3 long-term, and S&P A-1+ short-term and AA- long-term, each with a stable outlook. Its $8.0 billion bank credit facilities were undrawn. Supplier supply-chain-finance obligations included in accounts payable were approximately $6 billion, compared with $5 billion in the prior year.
Material changes versus the prior comparable period
- Pricing actions supported sales growth but did not fully offset inflationary commodity, transportation and manufacturing costs, driving significant gross-margin compression.
- Operating cash flow declined due largely to higher accounts receivable and inventory, including increased safety stocks.
- Net earnings and EPS benefited from lower interest expense, lower taxes, share-count reduction and the absence of the prior-year $512 million pretax early debt-extinguishment charge.
- Share repurchases declined to $10.0 billion from $11.0 billion, while dividends increased.
- Fiscal 2022 acquisitions were substantially higher than in fiscal 2021.
- Goodwill declined to $39.7 billion, primarily because of foreign-currency translation, partly offset by Beauty acquisitions.
Guidance, outlook, commentary and risks
Management’s long-term growth algorithm targets organic sales growth above category and geographic market growth, core EPS growth in the mid-to-high single digits, and adjusted free cash flow productivity of at least 90%. The filing does not provide a clear specific fiscal 2023 sales or EPS guidance figure.
Management expects productivity savings, pricing, innovation and supply-chain actions to help offset commodity, transportation, labor, energy and foreign-exchange pressures. Fiscal 2022 restructuring costs were $253 million, within the company’s historical annual range of $250 million to $500 million, with $147 million of restructuring reserves remaining at year-end.
The Russia-Ukraine war led P&G to reduce its Russian product portfolio, discontinue new capital investments and suspend media, advertising and promotional activity in Russia beginning in March 2022. Russia represented less than 2% of fiscal 2022 consolidated sales and less than 1% of net earnings; Ukraine represented less than 1% of both. Further disruption could cause supply interruptions, asset impairments or working-capital write-downs.
Principal risks include inflation and commodity-cost volatility, foreign exchange, supply-chain disruption, customer concentration, intense competition, cybersecurity and technology failures, COVID-19-related demand or operational volatility, geopolitical conflict, changing tax and regulatory requirements, litigation, environmental obligations and potential impairment of goodwill or intangible assets. The Gillette indefinite-lived intangible asset had a $14.1 billion carrying value and was identified as particularly sensitive to changes in growth, royalty and discount-rate assumptions; no impairment was recorded.
Most important facts for investors to verify
- Confirm the applicable period: this is FY2022 ended June 30, 2022, not a standalone 2021 Q4 filing.
- Reconcile reported sales growth with pricing, volume, mix and foreign-exchange effects.
- Assess whether pricing and productivity savings can offset continuing commodity, transportation, labor and energy inflation.
- Monitor operating cash flow, inventory levels, supply-chain-finance payables and adjusted free cash flow productivity.
- Review debt maturities, commercial paper reliance and the ability to fund dividends, repurchases and acquisitions.
- Evaluate Russia-Ukraine developments and potential impacts on operations, assets and intangible-asset valuations.
- Review sensitivity of the Gillette brand and Shave Care goodwill to slower growth, higher discount rates or weaker margins.
- Consider customer concentration, particularly Walmart and affiliates at approximately 15% of annual sales.