Volume acceleration in key markets
- 2Q24 core EPS beat market estimates on solid net sales growth and gross margin expansion
- Management raised its fiscal 2024 core net EPS growth to a range of 8%-9% y-o-y (from 6%-9% y-o-y previously)
- Enhanced volume performance in North America and Europe helped mitigate the challenges faced in Greater China
2Q24 core EPS beat market estimates on solid net sales growth and gross margin expansion. In the second quarter of fiscal year 2024 (October-December 2023), P&G reported core net EPS of US$1.84 (+16% y-o-y), above consensus’ estimate of US$1.70 given the solid net sales growth of 3% y-o-y and expansion in gross margin by 520 basis points versus the prior year from gross productivity savings, favorable commodity costs, and increased pricing. On a currency neutral basis, core EPS increased by a higher 18% y-o-y. Meanwhile, P&G’s diluted net EPS decreased by 12% y-o-y to US$1.40 in 2Q24, due to the non-cash charge to impair the carrying value of the Gillette trade name intangible asset and higher non-core restructuring charges. Core operating margin for the quarter increased 400 basis points as higher gross margin was partially offset by increased marketing investments, wage inflation, and foreign exchange impacts in SG&A.
P&G delivered 2Q24 net sales of US$21.4bn (+3% y-o-y), in line with consensus’ estimate. Excluding the impact of foreign exchange, and acquisitions and divestments, P&G’s 2Q24 organic sales rose by 4% y-o-y, on the back of 4% increase in pricing, partially offset by 1% decline in organic volume with neutral impact from product mix.
By segments, organic sales growth were Beauty (+1%); Grooming (+9%); Health Care (+2%); Fabric & Home Care (+6%); Baby, Feminine & Family Care (+3%). Organic volume of Grooming and Fabric & Home Care segments increased by 1% y-o-y. On the other hand, organic volume of Beauty, Health Care, and Baby, Feminine & Family Care segments declined by 1%/4%/2% y-o-y respectively.
Management raised core EPS growth guidance. P&G maintained its guidance range for fiscal 2024 net sales growth (2%-4% y-o-y) and organic sales growth (4%-5% y-o-y). However, the company adjusted its fiscal 2024 diluted net EPS growth to a range of -1%-0% y-o-y (from 6%-9% y-o-y previously) due to the impairment of the Gillette intangible asset value and the two-year restructuring program in certain Enterprise Markets, including Argentina and Nigeria. Meanwhile, management raised its fiscal 2024 core net EPS growth to a range of 8%-9% y-o-y (from 6%-9% y-o-y previously), implying EPS of US$6.37-US$6.43 per share. With 7-point foreign exchange headwind, currency neutral core EPS growth is expected to be at 15%-16% y-o-y. Given its strong 1H24 performance, P&G is on track to deliver towards the upper range on its fiscal 2024 guidance ranges for organic sales and core EPS growth.
The management anticipates sustained solid organic sales growth, supported by an accelerating volume growth that will help offset the expected normalization of pricing. The company also foresees an improvement in the Greater China market and gradual enhancement in SK-II consumption. Additionally, the management expects market pressures in the Middle East Africa to ease over time. In the second half of the fiscal year 2024, management anticipates the normalization of core EPS growth as the company foresees reduced pricing and commodity cost benefits, along with higher wage inflation and foreign exchange headwinds compared to the first half. Nevertheless, P&G remains committed to growing its market share across all markets through innovation, brand building, effective communication, trade-up strategies, product superiority, value creation, impactful marketing programs, strong retail execution, as well as productivity and supply chain improvements.
Enhanced volume performance in North America and Europe helped mitigate the challenges faced in Greater China. North America, Europe-focused markets, Asia Pacific-focused markets, and Latin America, collectively representing 75% of P&G’s sales, achieved a 6% organic sales growth in 2Q24, driven by three points of volume growth and three points of price mix. This performance helped mitigate weakness in the remaining 25% of the company’s sales, including Greater China, Eastern Europe, and Middle East Africa, where combined organic sales dropped by five points compared to the previous year.
Notably, North America experienced a 5% organic sales growth with a 4% increase in volume, Europe-focused markets saw a 7% increase in organic sales with a 3% rise in volume, and Latin America delivered a remarkable 17% organic sales growth. Conversely, Greater China witnessed a significant 15% decline in organic sales, with the SK-II brand experiencing a particularly steep drop of 34%. This decline was attributed to weakened consumer confidence, soft market conditions, and temporary headwinds for Japanese brands in the market. Additionally, Middle East Africa countries, such as Egypt, Saudi Arabia, and Turkey, faced challenges due to increased pricing to offset inflation and heightened tensions in the Middle East.