P&G: Earnings Report for the Quarter Ending December 31, 2020

Procter and Gamble (P&G) reported before the market opened on January 20, 2021, it earned $1.47 per diluted share in the quarter that ended on December 31, 2020, up 4 percent from earnings of $1.41 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP). 

Core earnings, a non-GAAP figure, rose 15 percent to $1.64 per share from $1.42 one year earlier, a much better change than seen in the GAAP figures. Core earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits. However, caution is warranted when analyzing these figures because management has considerable leeway in choosing which GAAP-required items to exclude.

This post compares the quarterly GAAP Income Statement published by P&G to the predictions I made in the “Look Ahead” post I shared earlier.   

First a little background about the company:  P&G, which owns brands familiar to shoppers around the world, is a long-time giant of the consumer products industry. COVID-19 increased consumer and business demand for cleaning products and this has boosted P&G's sales, as did the greater amount of time people are spending at home.  Note that P&G acquired in November 2018 the over-the-counter (OTC) consumer healthcare business of Germany's Merck for $3.7 billion in cash.

Revenue in the December 2020 quarter totaled $19.7 billion, 8 percent more than last year's $18.2 billion.   I had predicted Revenue of $18.8 billion, and the actual figure beat this by 5.1 percent.

The Fabric and Home Care business was responsible for 33 percent of overall revenue, and this unit's revenue grew by 12.0 percent compared to the year-earlier result. The Baby, Feminine and Family Care business contributed 25 percent of revenue, and this unit's revenue increased by 6.0 percent. The Beauty unit supplied 19 percent of revenue, and this business's revenue rose by 6.0 percent.

The Gross Margin strengthened from 51.4 percent of revenue to 53.1 percent, a sign that P&G sold its output and services at more profitable prices relative to production costs.  I had assumed the Gross Margin would be 51.0 percent, and the actual margin was much more profitable.

Sales, General, and Administrative expenses rose from $4.9 billion in the year-earlier quarter to $5.1 billion, but SG&A decreased from 26.8 percent to 25.9 percent of quarterly revenue.  This shows the company spent less per dollar of sales on other operational costs, such as marketing. I had expected SG&A to be 28 percent of revenue, a higher figure than the actual percentage.

Interest and other non-operating items totaled a net expense of $500 million.  I had predicted $425 million.  The non-operating  figure was pushed up by a one-time charge for early repayment of long-term debt, which was expected.  I had predicted $425 million.  

The effective income tax rate rose by 2.9 percent to 20.3 percent, which had a negative effect on net income.  The rate was higher than the 18.5 percent I had expected.  

Net Income attributable to P&G increased 3.7 percent to $3.85 billion, and it beat my estimate by 22 percent.  EPS, as mentioned above, grew 4.3 percent to $1.47 per share, handily beating my $1.20 estimate.

In summary, P&G’s revenue and operating margins increased by healthy amounts in the latest quarter, when compared to the year-ear period.  Negative factors included the one-time debt extinguishment charge and a higher tax rate.  All in all, though, it was a good quarter for P&G, and much better than I had predicted.

Please note that my organization of revenues, expenses, gains, and losses, which I use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

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