Brian Sozzi of Yahoo Finance talks to Procter & Gamble CFO Jon Moeller about the latest quarter and the company’s outlook.
Video transcription
BRIAN SOZZI: And on this opening day, we are also keeping an eye on P&G shares. Quarterly profits and sales exceeded estimates this morning. The tie maker also raised its sales and profit outlook for the entire year. Therefore, the report did much to shake the bears’ confidence in basic consumer stocks on Wall Street. Here’s what P&G Vice President and CFO Jon Moeller told me in a chat this morning.
JON MOELLER: Well, basically, you know, we are building a strong momentum that we have built in recent years. And that continues in the COVID environment. So, if you look at calendar year 19 as an example, pre-COVID, we grew 6%, increased main earnings per share by 15%, 102% free cash flow productivity, all based on a strong brand portfolio , the set of strategies we believe in, in an organization that has done an excellent job of executing these strategies.
And that allowed us to maintain momentum during the COVID period and, in many cases, build it. So, as you said, a strong quarter of 8%, a top line of 15%, earnings per main share grew 18% in constant currency and free cash flow productivity of 113%. Just as importantly, we feel that we are very well positioned to continue this momentum, even in what we hope will be a post-COVID environment soon.
BRIAN SOZZI: Yes, let’s talk about the post-COVID environment, Jon, because you talk to a lot of people on Wall Street. And the thought is that once vaccination, once more people start getting vaccinated in the United States and around the world, many of these basic consumer companies, their next 12 months may look very different from the last 12 months. But are you seeing that these results are sustainable?
JON MOELLER: Yes, and it is due to some things. First of all, we are eager to meet what we believe to be an ever-changing consumer need for products that help them with health, hygiene and a clean home. There are habits that are forming during this unfortunately long period of COVID, which we believe will continue, to some degree, after COVID. And there are a number of categories, geographies, our cost structure that has been hit hard by COVID.
Therefore, this did not lead to an increase in demand in all categories. It is a reduced demand, for example, in our personal hygiene and deodorant business, and part of our skin care business. Markets grew during COVID in the United States, but declined significantly in parts of the developing world, with declines of 13%, 15% and 20% of GDP.
And we had entire distribution channels that were closed as a result of COVID – the travel retail channel, the electoral channel in Europe, dentists’ offices, the out-of-home market with low occupancy in restaurants and hotels, which we serve. And, as I said from a cost perspective, there have been some benefits from increasing throughput as we move forward to meet the greater needs of the consumer.
But it has been difficult to find the amount of material needed to meet this demand, the cost of transportation, most importantly, the cost of ensuring a safe environment for employees. So, as COVID, as and when we arrive in a post-COVID environment, certainly some of the headwinds, or certainly some of the tailwinds, will dissipate. But some strong headwinds will also dissipate. And we are again with the strength of our brands and strategy and the capacity of our organization, with which we feel very good.
BRIAN SOZZI: You wear a lot of hats, Jon, at P&G. You are the CFO. You are also the COO and see many different parts of the business because of these positions. COVID-19 costs, these – is this just the new way of doing business, or do you expect that many of the costs you had to incur in the pandemic last year, will they go away?
JON MOELLER: Some become a cost to do business, but others will leave. I hope that part of the award for transport services, both land and sea, around the world will normalize over time. And there are also savings that we could identify as part of our experience with COVID, so today’s need to create tomorrow’s productivity inventions.
I hope that as we move forward, not necessarily quarter by quarter, but certainly, year by year, we will be in an environment that will allow us to continue to grow our revenue line and continue to grow margins modestly, like those other than the buckets of costs. are defined.
BRIAN SOZZI: Hey, Jon, I’m not sure if many people know this, but today is actually the first – the birthday – the one-year anniversary of when the first COVID-19 case was confirmed in the United States, in the United States laboratory. Looking back, how do you think the one-year pandemic here, at least officially based on today’s anniversary, how do you think it changed P&G?
JON MOELLER: I think it made us stronger, more resilient, more agile, less presumptuous, a stronger company in general.
BRIAN SOZZI: And today, it would be remiss not to mention that today is, in fact, the day of inauguration. How do you think – how do you think lowering the temperature in the United States, in the political landscape of the United States, how will that change P & G’s perspective in the next two years?
JON MOELLER: You know, first, first, second and third, we are focusing on meeting consumer needs in a preferential way, in a way that delights consumers and improves their daily lives. And when we do that and well, we are much less concerned with who or which party is in power or what the political environment is. And so, this is our focus. And again, we are confident that doing this well will serve consumers, our employees and partners and shareholders.
BRIAN SOZZI: Do you think this is an environment that boosts consumer confidence? Obviously, that would be good for your business.
JON MOELLER: Consumer confidence is very important. And as consumer confidence increases, this is a clear positive.
BRIAN SOZZI: Another plus, too, before I let you go, Jon, you are also increasing your stock buyback plan this fiscal year to $ 10 billion. We are in the range of $ 7 to $ 9 billion. What gives you confidence to pull the trigger on it?
JON MOELLER: The strength of the entire income statement, from sales to profits, and the cash flow that is occurring – I mentioned 113% of the productivity of free cash flow in the quarter. Therefore, we are increasing our share buyback commitment to up to $ 10 billion combined, with $ 8 billion in dividends. This will represent a return of $ 18 billion for shareholders this fiscal year, which represents about 125% of profits. We feel good about that.