Procter & Gamble shares were down sharply early in Friday’s session after the consumer products giant reported a mixed quarter. We viewed the action as a bit of profit-taking — and not a reflection of the results. The stock entered the session on a four-day winning streak while the broader market declined. Late Friday, as the Dow went into the green, so did P & G stock. P & G sales in the three months ended March 31 increased 1% year over year (3% organic) to $20.195 billion, short versus the $20.408 billion expected by analysts, according to data provider LSEG. Adjusted earnings per share rose 11% to $1.52, topping analyst forecasts of $1.37. Procter & Gamble Why we own it : We like P & G because demand for its household and personal care products does not tend to fluctuate based on the economy. It has effectively navigated high inflation over the past two years. With signs of an uptick lately and expectations of higher Fed interest rates for longer, we’re glad to have this defensive stock in our portfolio. Competitors : Colgate-Palmolive and Unilever Weight in Club portfolio : 2.6% Most recent buy : April 3, 2024 Initiated : April 7, 2022 Bottom line Sales were weaker than expected, but it was more than offset by a 300-basis-point improvement in gross margin, resulting in a beat on earnings. And because of that strong profitability, management was able to raise its full-year earnings forecast to a range above Wall Street’s expectations, even on the low end. Equally important, operating cash flow and free cash flow generation easily outpaced expectations. Cash flow is key to shareholder returns, so we were pleased to see the company report an adjusted free cash flow productivity result (calculated as operating cash flow excluding capital spending divided by net earnings) of 87%. That allowed management to repurchase $1 billion worth of PG shares while paying out another $2.3 billion in dividends. Procter & Gamble last week raised the payout by 7%, the 68 th consecutive increase (this is also the 134 th consecutive year PG has paid a dividend). On the post-earnings call with investors, CFO Andre Schulten said there is “no trade-down of note” to private label brands in the United States, but the company is seeing shoppers trade up into P & G products. Volumes were impacted by some inventory destocking, which isn’t expected to be a prolonged headwind. Schulten expects to see volumes increase beyond the 3% mark hit this quarter. Foreign exchange is proving to be less of a headwind and commodity costs are coming down. Factor in the strong cash flow generation, revised guidance, and improving volumes, and we came away feeling very good about Procter & Gamble’s future, no matter the economic backdrop. As a result, we reiterate our 1 rating and are nudging up our price target to $170 (from $168). Procter & Gamble offers best-in-class value and can therefore grow earnings via a combination of cost discipline and volume growth (not purely on price hikes). That will separate P & G from its peers as we work through 2024 and put the North American destocking and China’s weakness behind us. PG YTD mountain Procter & Gamble YTD Guidance Management said fiscal year 2024 core earnings, which exclude one-time items, should grow between 10% and 11% over 2023. That’s up from the 8% to 9% previously forecast. Based on full fiscal year 2023 of $5.90, that means a new range of $6.49 to $6.55, a beat versus the $6.46 consensus estimate, even on the low end. For the full year, the overall sales growth rate was reiterated at 2% to 4% as was the organic growth target of 4% to 5%. The expected foreign exchange headwind to sales of 1% to 2% was also reiterated. Net interest expense is still expected to be a $100 million headwind. The currency impact on results is also diminishing, with management now forecasting a $600 million hit after taxes in fiscal 2024, down from the $1 billion headwind previously expected. Additionally, the team now expects lower commodity costs to be a $900 million after-tax tailwind, up from $800 million previously. Quarterly results As we can see in the earnings table above, sales growth was weaker than consensus but the company was able to more than make up for it on the cost side due to lower commodity prices. This resulted in a lower cost of sale and therefore higher than expected gross profit margin. Grooming and healthcare read as misses in the chart above, in terms of pre-tax income performance across key segments. But the misses were extremely marginal, a fraction of a percentage point below expectations. So in our view, beauty was the only segment to truly miss expectations. And that was to be expected following comments from Ulta Beauty at a recent JPMorgan retail conference. On the call, Schulten said growth across categories continues to be broad-based with 8 of 10 product categories holding or growing organic sales in this quarter. In North America, organic sales rose 3% on the back of a 3% increase in volume. While that’s down from the 4% volume increase the prior quarter, there was a one percentage point headwind resulting from retail inventory destocking in the personal health care category. In Europe, focus markets rose 7% on the back of a 4% increase in volume, and in Latin America, organic sales were up 17% versus the year-ago period. Weakness continued in Greater China, with organic sales declining 10%. However, it’s a sequential improvement from the 15% decline in the prior quarter. “We have seen some month-to-month improvement in overall Greater China sales trends, though we expect it will be another quarter or 2 until we return to growth,” Schulten said. (Jim Cramer’s Charitable Trust is long PG. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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Procter & Gamble shares were down sharply early in Friday’s session after the consumer products giant reported a mixed quarter. We viewed the action as a bit of profit-taking — and not a reflection of the results. The stock entered the session on a four-day winning streak while the broader market declined. Late Friday, as the Dow went into the green, so did P&G stock.