Procter & Gamble beat profit and sales estimates, and its shares rose almost 6% to near a 52-week high. The company now expects $1.4 billion of commodity and freight headwinds this fiscal year, up from $1 billion, and core operating margin fell 80 basis points.
Procter & Gamble's fiscal first quarter showed the one thing consumer-staples investors have been missing: people buying more product, not just paying more for it.
Net sales rose 4% to $23.28 billion in the three months ended Sept. 30, ahead of the $22.80 billion analysts expected, according to LSEG. Organic sales, which strip out currency and acquisitions, also grew 4%. Volume rose 2.4%, with pricing adding about 0.4 percentage point.
Core earnings per share were $2.00, up 1% and above the $1.88 consensus. Diluted earnings per share on a reported basis were $1.97.
Shares traded at $166.09 at 1:46 p.m. Eastern, up 5.9%, close to their 52-week high of $167.25 and at their highest level since February, on a day the S&P 500 fell 1.3%. Other staples makers rose too: Kimberly-Clark gained 4.2%, Colgate-Palmolive 3.9% and Coca-Cola 2.3%.
The cost line moved the wrong way
The less flattering number is the cost forecast. P&G now expects commodity, energy and freight costs to cut about $1.4 billion from fiscal 2027 profit, up from its earlier estimate of roughly $1 billion.
It held its profit guidance anyway: core earnings per share growth of flat to 3%, or $6.89 to $7.11, and organic sales growth of 1% to 3%. It updated all-in sales growth to 2% to 4% to reflect the acquisition of Thorne, which it completed on Oct. 1.
Keeping the forecast with a $400 million larger headwind implies that the company expects the volume growth and productivity savings to cover the difference. The quarter offers some evidence and some caution. Productivity savings came to 250 basis points, but core operating margin still fell 80 basis points.
Chief Financial Officer Andre Schulten told CNBC the quarter was driven by 4% organic sales growth.
Bulls and skeptics
The optimistic reading is that P&G is one of the few large consumer companies growing volume, which gives it room to absorb input costs without leaning on price increases that could hurt demand. That is worth a premium on a day investors were looking for steady earnings.
The cautious reading is that margins are already shrinking, the cost estimate has risen 40% in a quarter, and oil above $110 a barrel could push it higher. Holding the forecast leaves less cushion for the rest of the year.
What to watch
Commodity and freight costs, particularly energy, through the fiscal second quarter. Management indicated growth near 3% in the first half with a slight acceleration in the second. Any slip in volume would remove the main support for the held forecast.