The Procter & Gamble Company (PG) Earnings Call Transcript & Summary

P&G would like to remind you that today's discussion will include a number of forward-looking statements. If you will refer to P&G's most recent 10-K, 10-Q and 8-K reports You will see a discussion of factors that could cause the company's actual results to differ materially from these projections. Additionally, the company has posted on its Investor Relations website, www.pginvestor.com, a full reconciliation of non-GAAP and other financial measures.

Good morning. I'd like to start today with momentum built before and during COVID driven by a strong and focused portfolio of brands and integrated set of growth-oriented strategies and operational excellence. I'll talk about the strategies and priorities that have been driving this momentum. We'll close by addressing post-COVID prospects, which we believe are strong. In the 6 quarters preceding COVID, we grew our top line at average of 5%, which was ahead of the rate of market growth. We built momentum during this period with calendar year 2019 organic sales up 6%. This momentum continued in calendar year 2020, which we just completed, with 8% organic sales growth while overcoming significant challenges, including the lockdown in China, closure of the travel retail, electro, specialty beauty and away-from-home channels, operational challenges. safely staffing our facilities and sourcing materials necessary to maintain and in some categories, significantly increase production to serve heightened consumer cleaning, health and hygiene needs, a very strong top line. This top line growth, our innovation programs and productivity progress drove strong pre-COVID bottom line growth. Calendar year 2019 quarterly core earnings per share growth plus 6%, plus 17%, plus 22%, plus 14%. That strength also continued in calendar year 2020 with core earnings per share growth of 13%. Currency-neutral core earnings per share past 8 quarters, 15%, 26%, 24%, 15%, 15%, 11%, 22%, and most recently, 18. Earnings flowing through to cash, averaging more than 100% adjusted free cash flow productivity. This momentum ahead of and during COVID gave us confidence continuing to provide guidance as many eliminated it and to increase our dividend in April last year at the highest rate in many years, even as we struggled with new COVID realities. While we're on the dividend, let me briefly digress, the announcement last April marked the 64th consecutive annual increase and the 130th consecutive year in which P&G has paid a dividend. P&G is only 1 of 10 U.S. companies to pay a dividend for more than 120 consecutive years. Only 3 U.S. companies have increased dividends more consecutive years than P&G. Over the last 10 years, our annual dividend has increased from $1.80 per share to $3.03 per share, up nearly 70%, returning more than $135 billion of cash to shareowners, including share repurchase. Now back to results, looking at the last 2 quarters. Strong top line growth has been broad-based. 10 of 10 categories are growing or holding organic sales. Home Care grew over 30%. Family Care and Oral Care, up double digits. Fabric Care and Personal Health Care up high singles, Feminine Care, Grooming, Hair Care and Skin and Personal Care up mid-singles. Baby Care flat in the first half, up low singles in Q2. Geographically, U.S. organic sales up 14% in the first half of this fiscal year. Past 4 quarters sequentially for calendar year 2020, plus 10% plus 19%, plus 16% and plus 12%. Greater China, up 12%. Past 4 quarters, minus 10% during lockdown, plus 14%, plus 12% and plus 12% in Q2. Focus markets up 10% front half, and enterprise markets, which are significantly impacted by market contraction related to COVID, still up 4%. E-commerce sales up nearly 50% for the first half. Aggregate market share growth of 30 basis points fiscal 2020 and 20 basis points in Q2. Since the start of the fiscal year, raising organic sales growth guidance from a range of 2% to 4% to a range of 4% to 5% after the first quarter to a range now of 5% to 6% in our January update, increasing our core earnings per share growth guidance from a range of 3% to 7% going into the fiscal year to a range of 5% to 8% after the first quarter, currently to a range of 8% to 10%, a 4-point increase at the midpoint of the range versus initial guidance. Raising our target for adjusted free cash flow productivity from 90% going into the year to about 95% after Q1, currently at a range of 95% to 100%. We expect to pay approximately $8 billion in dividends, and further increased our outlook for share repurchase from a range of $7 billion to $9 billion to up to $10 billion. Combined, the plan to return around $18 billion of cash to shareowners this fiscal year over 125% of all-in earnings. We've established 3 priorities that have been guiding our actions and our choices in this crisis period. First, ensuring the health and safety of our P&G colleagues around the world; second, maximizing the availability of products we produce to help people and their families with their cleaning, health and hygiene needs. These products are more important than ever given the needs created by the current crisis, increased awareness of health and hygiene and the additional time that we're all spending at home. Third, supporting the communities, relief agencies and people who are on the front lines of this global pandemic. These priorities are completely congruent with our strategic choices, which we remain confident in and are the foundation for balanced top and bottom line growth and long-term value creation. A portfolio of daily use products, many providing cleaning, health and hygiene benefits in categories where performance plays a significant role in brand choice. Superior products delivered with superior packaging, brand communication, retail execution and value in all price tiers where we compete. Superior offerings delivered with superior execution drive market growth. Leading category growth mathematically builds market share and builds business for our retail partners. We've made investments to strengthen the long-term health and competitiveness of our brands, and we'll continue to invest to extend our margin of advantage and quality of execution, improving options for consumers around the world. An example, U.S. Fabric Care. Over the last 40 years, P&G U.S. Fabric Care has grown by 5x, 500% in a market that has grown 4x. Market growth has been the main driver of P&G's growth, 80%, which we've driven with leading innovation. When we grow the market, we will grow share as we have in Fabric Care, up 5 points. with strong growth in profit and margin, meaningfully superior unit dose detergents, Tide PODS and Gain Flings have driven over 90% of U.S. laundry detergent category growth since they were launched at roughly a 50% price premium. Last spring, Tide Power PODS and Gain Ultra Flings were introduced to the light consumers doing larger loads, driving correct dosing, combating set in stains, eliminating strong odors, providing a hygienic clean with a long-lasting scent. Let's take a look at the copy, which recently aired during the Super Bowl. [Presentation]

This innovation is contribution to high single-digit laundry category growth over the past 12 months, with P&G's share of the unit dose segment nearly 80%, up over 1 point. 29% of U.S. households now use a unit-dose detergent, up 13 points over the past 4 years with much more opportunity ahead. Fabric enhancer scent beads are a great example of a superior product and package. Packaging that shows the product and communicates the scent benefit with a squeeze scent release, distinctive and appealing. Fabric enhancers are the fastest-growing segment in the U.S. Fabric Care category, up double digits, and scent beads are the fastest-growing form, growing over 20% over the past 12 months. Superior innovation that grows markets and market share. Scent beads segment share up 8 points. Overall Fabric enhancer share up 9 points over the past 4 years. Tremendous upside here, too. We've recently launched into China, Thailand and Spain with additional expansion opportunities ahead. Another example of superiority-driven momentum, the Home Care team invested in product performance and packaging in each subcategory, hand dish, auto dish, air care and surface care including the launch of Microban 24 surface sanitization products and Don Power Wash in February 2020. Let's take a look at Microban 24 advertising. [Presentation]

Across the Home Care portfolio, brand communication was step-changed with educational TV advertising, delivering an immediate lift to the category and our brands by showing consumers more ways to use these products. In-store execution was elevated with additional navigational and educational signage to help consumers choose the product that was right for them. These superiority investments drove market growth and strong results even before people started spending more time at home during the pandemic. In the last 2 fiscal years, P&G Home Care has driven about 60% of global category market growth with organic sales growth accelerating from low single digits to double digits and market share up 1.5 points. The business grew organic sales 7% in fiscal '19 and 7% in the first half of fiscal '20, ahead of the crisis and ended the fiscal year at plus 16%. Strong momentum that only accelerated as people started spending more time at home and adopted new cleaning habits. Global Home Care organic sales growth of 32% in the first half of fiscal '21. Superiority is enabling strong results in our China Hair Care business, with first half organic sales up double digits, one of the strongest growth periods in the last decade. Our 7 brand lineup is delivering share growth in both the online and offline channels in a market growing around 9%. Pantene is leading the growth with organic sales up 20% in the front half following 4% last fiscal after multiple years of flat to declining sales. The brand addressed significant gaps across several superiority vectors, launching premium innovation in the underdeveloped segments of conditioners and treatments and improving how we communicate with consumers online. Two examples of premium innovation launched in the fast-growing conditioner and treatment segments. Pantene Quench Shot Masks and 3 Minute Miracle have successfully attracted new consumers to the brand as well as expanded the regimen of the current Pantene shampoo consumer. These innovations have contributed to over 35% market growth in these segments online over the past 12 months. Superior brand communication required driving strong social buzz for our products in a highly fragmented category, where consumers frequently seek information from social media and key opinion leaders before buying their beauty products. Pantene shifted most of its advertising dollars into quick digital engagements and influencer live streaming during major online promotional events. Let's watch a few. [Presentation]

Results are strong. Pantene's social buzz is the 660 index versus year ago. And for the first time in the brand's history, Pantene became the #1 conditioner brand in the 2020 Double 11 event. Both Quench Shot Masks and 3 Minute Miracle are on track to deliver sales growth over 100% this fiscal year, disproportionately contributing to the strong category growth in these segments, penetration gains above 10% for Pantene conditioners and share gains for the brand. Shifting to our Oral Care business, superior performance that drives markets. Oral-B iO power brush offers an irresistible consumer brushing experience. It improves brushing efficacy and compliance with position sensing technology. The value of this superior performance is evident to consumers, even with a premium price, driving market size growth in the power brush category. P&G's global value share in the brush segment is up 2.5 points over the past 3 months. Let's take a look at the iO power brush copy. [Presentation]

Through Q2, iO has contributed more than half of U.S. power brush category growth and is expected to reach $200 million in sales in fiscal '21. iO has already achieved more than 50% share of super premium toothbrushes. Crest also continues to bring new innovations to the high-performance premium segment of the toothpaste market. Innovations like Gum Detoxify, Enamel Care and 3D whitening with charcoal have driven high single-digit organic sales growth for P&G's global paste business, meaningfully contributing to mid-single-digit market growth for the category. In the U.S. whitening segment, we're currently launching the next breakthrough in teeth whitening, allowing consumers to move beyond occasion-based whitening to a product that can be used up to 4 times per day with no rinsing or brushing needed. Crest whitening emulsions create a micro thin layer of concentrated peroxide droplets, so thin, you can't even feel them. Another example of breakthrough innovation. Let's take a look at that copy. [Presentation]

Crest whitening emulsions launched in Walgreens in October 2020 and has achieved a 15% value share after only a couple of months in market, superior products, superior packages and superior execution. P&G was ranked #1 for the sixth consecutive year by our retail partners and the recently released Advantage Report, extending our lead over household and personal care and food and beverage competition. P&G was ranked #1 in the U.S., #1 across focus markets and #1 in each of the enterprise markets. Importantly, ranked #1 globally across all 7 performance areas. Superiority is an opportunity that does not sunset. It is a relative measure versus the best competition in the market. It's not a static target. There is always upside to grow categories and delight consumers. We've made investments to strengthen the long-term health and competitiveness of our brands, and we'll continue to invest in advertising, innovation and go-to-market execution to extend our margin of advantage for consumers around the world. The strategic need for these investments, the short-term need to manage through the crisis we're all facing and the ongoing need to drive balanced top and bottom line growth, including margin expansion, underscore the importance of productivity. Productivity has become a part of who we are. It's now as integral to our culture as innovation. We're driving cost savings and efficiency improvements in all facets of our business, cost productivity and cash up and down the income statement and across the balance sheet. Success in our highly competitive industry requires agility that comes with a mindset of constructive disruption. A willingness to change, adapt and create new trends and technologies that will shape our industry for the future. This applies across all areas of the value chain, including innovation, brand building, the supply chain and digitization and data analytics. We're driving constructive disruption by embracing lean innovation, acting with the speed and agility of a start-up to create the future. We're reinventing brand building with precision tools like propensity modeling that allow us to reduce spend while increasing our reach and relevance. Over the past 5 years, we've delivered over $2 billion in media savings and efficiencies, much of which has been reinvested into higher reach and effectiveness. We see much more opportunity ahead for further savings and greater effectiveness. We're advancing supply chain network capabilities in the face of the COVID crisis, and we'll build some of these changes into how we work in the future. Accelerating platforms and machine learning to better understand consumption patterns and raw material availability. Finally, in the U.S., Europe, Latin America and Asia, we're using data and analytics to better ensure we're in precisely the right stores down to the neighborhood level with the right shelf sets, placement, sampling and marketing resulting in a better shopper experience and driving category growth. The new organization structure we implemented in July 2019 is working. 6 industry-based sector business units, managing 10 product categories with a differentiated approach in focused markets and enterprise markets and very small corporate groups with best-in-class functional expertise. A more empowered, agile and accountable organization with little overlap or redundancy, flowing to new demands, seamlessly supporting each other to deliver our priorities around the world. These strategic choices we've made to focus and strengthen our portfolio in daily use categories where performance drives brand choice to establish and extend the superiority of our brands, to make productivity as integral to our culture as innovation, to lead constructive disruption across the value chain and to improve organization focus, agility and accountability are not independent strategies. They reinforce and build on each other. When executed well, they grow markets, which in turn grow share, sales and profit. It's these strategies, brands and our people that have established strong momentum pre-COVID, have built momentum through COVID and position us well to serve and create value in a post-COVID environment. Some COVID-related tailwinds may dissipate but so will many very strong headwinds. As consumers spend more time at home, we see dynamics play out differently across different categories. More time at home benefits our family fabric and home care businesses. But the same dynamic negatively impacts Shave Care. Men shave less well staying at home and some other categories like deodorants. Impacts have also differed across regions. While North America market growth has increased due to consumers spending more time at home, the reverse is true in our Asia Pacific, India, Middle East and Africa region, for example. We've suffered disruptions across multiple channels, closures across electro, specialty beauty, away-from-home channels and dental offices. In Japan, department stores still lack beauty consultants, which impacts our premium SK-II business. Our P&G professional away-from-home business has been impacted by low hotel and restaurant occupancy. We've seen some supply chain benefits from higher throughput as we simplify the number of SKUs but costs have increased to source materials, maximize safety and importantly, to transport finished goods across land and sea. So as I said previously, when we're out of COVID, we expect some of the current tailwinds to our business will dissipate but some very strong headwinds should abate or disappear. While we will undoubtedly experience some volatility as and when we move to a new reality and quarterly results will not move in a straight line, we're optimistic about our post-COVID prospects and generally like our hand. The relevance of our categories in consumers' lives potentially increases. We will serve what will likely become a forever altered cleaning, health and hygiene focus for consumers who use our products daily or multiple times each day. There may be a continued increased focus on home, more time at home, more meals at home with related consumption impacts. The importance of noticeably superior performance potentially grows. There's potential for increased preference for established reputable brands that solve newly framed problems better than alternatives, potentially less experimentation. Potential for a lasting shift to e-commerce, both e-tailers and omnichannel. Our experience to date makes us believe we are generally well positioned in this environment. We're discovering lower-cost ways of working with fewer resources, today's necessity giving rise to the productivity inventions of tomorrow. New digital tools are being brought to the forefront, providing another productivity driver on the factory floor, in our labs, in the office environment. So in the longer term, we believe P&G is well positioned to serve consumers' heightened needs and changing behaviors and to serve the changing needs of our retail and distributor partners, all of which are critical to long-term value creation. Our integrated strategies were yielding strong results before COVID, These strategies are working during the crisis. These strategies should drive progress after the crisis. We very much like our long-term prospects, though the near term will continue to be challenging and is more difficult to predict. We'll manage the short to midterm, consistent with the strategy we've outlined many times and against the immediate priorities of ensuring employee health and safety, maximizing availability of our products to serve cleaning, health and hygiene needs and helping society overcome the challenges of this crisis. We're stepping forward, not back. We're doubling down to serve consumers in our communities. We're doing this in our interest, in society's interest and in the interest of our long-term shareowners. Thank you.