Procter & Gamble Company — Form 10-Q Summary
Reporting period: Three and nine months ended March 31, 2024. Although the request identifies “2023 Q3,” the filing covers P&G’s fiscal third quarter of 2024. The statements are unaudited and prepared under U.S. GAAP.
Business Context
P&G is a global consumer packaged goods company operating in approximately 180 countries and territories, with five reportable segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. More than half of sales are generated outside the United States.
Financial Highlights
| Metric | Three months ended March 31, 2024 | Change | Nine months ended March 31, 2024 | Change |
|---|---|---|---|---|
| Net sales | $20.195 billion | 1% | $63.507 billion | 3% |
| Operating income | $4.460 billion | 5% | $14.660 billion | 5% |
| Net earnings attributable to P&G | $3.754 billion | 11% | $11.742 billion | 4% |
| Diluted EPS | $1.52 | 11% | $4.75 | 5% |
| Operating cash flow | Not separately provided | — | $14.092 billion | $2.585 billion increase |
| Adjusted free cash flow | Not separately provided | — | $11.975 billion | Not clearly provided |
Margins: Gross margin was 51.2% for the quarter, up 300 basis points, and 52.0% for the nine-month period, up 430 basis points. Operating margin was 22.1% for the quarter and 23.1% year to date. Net earnings margin was 18.7% for the quarter and 18.6% year to date.
Sales drivers: Quarterly reported sales growth reflected 3% pricing, offset by 2% unfavorable foreign exchange; volume and mix were neutral. Organic sales increased 3%. For the nine-month period, 5% pricing and 4% organic sales growth were partially offset by unfavorable foreign exchange and unchanged volume and mix.
Liquidity and debt: Cash and cash equivalents were $6.828 billion at March 31, 2024, compared with $8.246 billion at June 30, 2023. Current liabilities exceeded current assets by $9.9 billion. Debt due within one year was $7.729 billion and long-term debt was $24.253 billion. Management expects operating cash flow, refinancing capacity and available financial institution funding to support short-term liquidity needs.
Capital allocation: During the first nine months, P&G paid $6.863 billion in dividends and repurchased $3.490 billion of treasury stock. Management reaffirmed an expectation to repurchase $5 billion to $6 billion of shares during fiscal 2024, financed through operating cash flow and debt issuance.
Material Changes Versus Prior Comparable Period
- Sales increased 1% in the quarter and 3% year to date, primarily from pricing rather than volume growth.
- Gross margin improved materially due to pricing, manufacturing productivity and lower commodity costs, partly offset by foreign exchange, product mix and investments.
- SG&A increased 9% in the quarter and 11% year to date, driven mainly by higher marketing and overhead spending. SG&A as a percentage of sales increased to 29.1% quarterly and 26.8% year to date.
- A $1.3 billion pretax, non-cash impairment charge related to the Gillette indefinite-lived intangible asset was recorded in the quarter ended December 31, 2023. The after-tax impact was approximately $1.0 billion.
- Reported year-to-date diluted EPS increased 5% to $4.75, while Core EPS, excluding incremental restructuring and the Gillette impairment, increased 15% to $5.19.
- Operating cash flow increased to $14.1 billion from $11.5 billion in the prior-year period, while financing activities used $12.4 billion, primarily for dividends, share repurchases and debt activity.
Outlook, Risks and Unusual Items
No new consolidated sales or earnings guidance is clearly provided in the filing text. Management reaffirmed the fiscal 2024 share repurchase expectation of $5 billion to $6 billion.
P&G expects incremental after-tax restructuring charges of $1.0 billion to $1.5 billion, primarily non-cash foreign currency translation losses associated with a limited market portfolio restructuring in certain enterprise markets, including Argentina and Nigeria. Charges are expected in fiscal 2024 and 2025; $252 million was incurred during the first nine months.
The Gillette intangible asset remains susceptible to additional impairment. Management identified risks from higher discount rates, currency devaluation, inflation, recession, market contraction, changes in grooming habits, competition and further reductions in Russian operations.
Key ongoing risks include foreign exchange volatility, commodity and labor costs, supply-chain disruption, geopolitical conditions including the Russia-Ukraine war, changing consumer demand, competitive pricing, regulatory and tax changes, litigation, cybersecurity and information-technology risks, and execution of productivity and restructuring programs.
Management states that litigation and environmental matters are not expected to materially affect financial position, results of operations or cash flows based on currently available information. Tax audits are ongoing across multiple jurisdictions, and approximately $90 million of existing liabilities could be resolved over the next 12 months, although timing and ultimate settlement amounts remain uncertain.
Important Facts for Investors to Verify
- Confirm the effect of pricing-led growth and whether volume trends improve, particularly in Baby Care, Beauty and Greater China.
- Monitor the Gillette intangible asset for further impairment and review sensitivity to discount rates, growth rates and royalty assumptions.
- Track the timing and cash versus non-cash composition of the $1.0 billion to $1.5 billion restructuring estimate.
- Assess whether productivity savings and lower commodity costs can offset higher marketing, wage, overhead and foreign exchange costs.
- Evaluate liquidity, refinancing requirements and the effect of share repurchases and dividends on leverage and cash balances.
- Review foreign exchange, Russia-Ukraine, Argentina and Nigeria exposures, as well as tax audit and legal contingencies.