Procter & Gamble Company: Fiscal 2021 Form 10-K Summary
Reporting period: The filing is an annual report for the fiscal year ended June 30, 2021, not a 2020 Q4 filing as indicated in the request metadata. P&G sells branded consumer products in more than 180 countries through retail, e-commerce, professional and direct-to-consumer channels. Reportable segments are Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care.
Financial Performance and Key Metrics
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Net sales | $76.1 billion | $71.0 billion | +7% |
| Operating income | $18.0 billion | $15.7 billion | +15% |
| Net earnings | $14.4 billion | $13.1 billion | +10% |
| Net earnings attributable to P&G | $14.3 billion | $13.0 billion | +10% |
| Diluted EPS | $5.50 | $4.96 | +11% |
| Core EPS | $5.66 | $5.12 | +11% |
| Operating cash flow | $18.4 billion | $17.4 billion | +6% |
| Adjusted free cash flow | $15.8 billion | $14.9 billion | +6% |
- Reported unit volume increased 3%; organic sales increased 6% on 3% organic volume growth. Foreign exchange contributed 1% to reported sales, pricing contributed 1%, and mix contributed 2%.
- Gross margin increased 90 basis points to 51.2%, while SG&A declined 60 basis points to 27.6% of sales. Operating margin increased 150 basis points to 23.6%; net earnings margin increased to 18.9% from 18.5%.
- The effective tax rate increased to 18.5% from 17.2%, primarily because the prior year included a tax benefit from legal-entity simplification.
- Adjusted free cash flow productivity was 107%, above the company’s long-term target of at least 90%.
- Segment sales and net earnings were: Beauty $14.4 billion and $3.2 billion; Grooming $6.4 billion and $1.4 billion; Health Care $10.0 billion and $1.9 billion; Fabric & Home Care $26.0 billion and $4.6 billion; and Baby, Feminine & Family Care $18.9 billion and $3.6 billion.
Cash Flow, Debt and Liquidity
- Capital expenditures were $2.8 billion, or 3.7% of sales, compared with $3.1 billion in fiscal 2020.
- Cash used in financing activities was $21.5 billion, including $11.0 billion of share repurchases, $8.3 billion of dividends, and net debt reductions.
- Total debt was $32.0 billion at June 30, 2021, compared with $34.7 billion a year earlier. Debt due within one year was $8.9 billion and long-term debt was $23.1 billion.
- Cash and cash equivalents were $10.3 billion, down from $16.2 billion. Current liabilities exceeded current assets by $10.0 billion, primarily because of short-term borrowings.
- The company had $8.0 billion of undrawn bank credit facilities and reported stable investment-grade ratings: Moody’s P-1/Aa3 and Standard & Poor’s A-1+/AA-.
- Supplier-finance-related amounts included in accounts payable were approximately $5.0 billion, up from $4.0 billion. Approximately 3% of global suppliers participated in the program.
Material Changes Versus the Prior Comparable Period
- Sales growth accelerated across the portfolio, led by Health Care and Fabric & Home Care, each up 10%. Beauty increased 8%, Grooming 6%, and Baby, Feminine & Family Care 3%.
- Operating leverage, manufacturing savings, pricing and lower restructuring costs expanded operating margin by 150 basis points.
- Fiscal 2021 included a $512 million pretax charge, or $427 million after tax, for early extinguishment of debt. Excluding this item, core EPS increased 11%.
- Restructuring charges declined to $330 million from $782 million as the incremental multi-year productivity program was substantially completed in fiscal 2020. The remaining restructuring reserve was $278 million.
- Share repurchases increased to $11.0 billion from $7.4 billion, while the quarterly dividend was increased 10%. The annual dividend per common share was $3.2419.
- Fiscal 2021 produced no goodwill or indefinite-lived intangible impairment charges. However, the Gillette indefinite-lived intangible asset remained highly sensitive to assumptions regarding recovery from pandemic-related demand pressure.
Guidance, Outlook, Commentary and Risks
- Management’s long-term financial targets are 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 company did not provide a specific fiscal 2022 sales or EPS forecast in the provided filing text.
- Management stated that COVID-19 did not materially reduce consolidated fiscal 2021 sales because increased demand for cleaning, hygiene and health products largely offset weakness in shave care, professional channels and certain international markets. Future pantry destocking, recession, supply disruption and changing consumer behavior could increase volatility.
- Key risks include foreign-exchange volatility, commodity, freight and labor inflation, supply-chain disruption, concentrated retail customers, intense branded and private-label competition, e-commerce shifts, product quality or recall events, cybersecurity incidents, regulatory and tax changes, litigation, political instability, and the ability to realize productivity savings.
- Walmart and its affiliates represented approximately 15% of total sales; the top ten customers represented approximately 39%.
- Shave Care goodwill was $12.8 billion and the Gillette indefinite-lived intangible asset was $14.1 billion at June 30, 2021. A 25-basis-point increase in the discount rate or decrease in growth rates, in isolation, would reduce estimated fair value by approximately 6%; a 50-basis-point decrease in the Gillette royalty rate would reduce its estimated fair value by approximately 4%.
- Management reported no material unresolved legal proceedings, no material off-balance-sheet financing arrangements, and effective disclosure controls and internal control over financial reporting. Deloitte & Touche issued unqualified audit opinions.
Important Facts for Investors to Verify
- Reconcile the requested “2020 Q4” period with the filing’s actual fiscal year ended June 30, 2021.
- Review the GAAP-to-core EPS reconciliation and assess the effect of the $427 million after-tax debt-extinguishment charge.
- Evaluate whether pandemic-related demand benefits, particularly in Home Care, Fabric Care and hygiene products, are sustainable after normalization and potential pantry destocking.
- Monitor commodity, freight and labor costs, pricing execution, foreign exchange, and the effect of these factors on gross margin.
- Assess short-term debt maturities, commercial paper reliance, supplier-finance balances and the company’s capacity to fund dividends and repurchases.
- Review sensitivity of Shave Care goodwill and the Gillette trade name to demand recovery, competitive pressure, currency movements and discount rates.
- Track customer concentration, market-share trends and volume performance, especially in Baby Care, Grooming and international markets.