Jon Moeller, P&G Vice Chairman, COO & CFO, joins Yahoo Finance to discuss the company’s fiscal year 2021 first-quarter earnings report with Alexis Christoforous and Brian Sozzi.

Video Transcript

ALEXIS CHRISTOFORUS: It was another blowout quarter for Procter and Gamble. Our earnings beat on both the top and bottom line sales were up 9% year-over-year as this pandemic continues to fuel higher demand for household products. P&G also raised its sales outlook for next year. We had an opportunity to sit down with the CFO of P&G, John Moeller, earlier this morning to talk about what's driving that growth.

[SOUND EFFECT]

JOHN MOELLER: Our top-line growth is really very broad based in the quarter. We grew in every region. We grew in every reporting segment. Our two largest markets, the US and China, we grew at 16% and 12%, respectively. There's a heightened need, as we're all aware, for products that deliver health, hygiene, and clean home benefits. And consumers are moving towards brands that they know and trust and know can do the job, and that's fueling our momentum as well.

And lastly, we've been executing an integrated set of strategies that built momentum pre-COVID. We grew 6% in calendar year before 2019, 2000-- anyway-- and we grew 6% the first half of calendar 2000, as we went into COVID, and that's just accelerated to 9% in the quarter that we've just completed, which gives us the confidence to increase our guidance on the top line, on the bottom line, free cash flow productivity, and increase our commitment of cash return to share owners.

BRIAN SOZZI: John, is this just the new normal? For as long as COVID-19 is around, in our lives, are these growth rates the new normal for Procter and Gamble? Because if they are, I would argue your stock needs to be revalued again.

JOHN MOELLER: Well, I mentioned the strength of the business pre-COVID, which was growing at 6% on the top line. And so this isn't just the new normal. Having said that, we do see increased usage of our products, not just an increase in pantry inventory, but an increased consumption. Paper towel and bath tissue consumption at home up 15%. In the home care category, surface cleaning and dishwashing up significantly as well. And we do believe that many of those changes and habits will last beyond COVID. At what level? We'll have to see.

But I think the most important thing in terms of assessing our ability to continue to grow in a robust fashion is whether the strategy is relevant pre, during, and post-COVID. And we certainly believe it is. We've made us a real effort to operate in daily use categories, where performance drives brand choice, and then we've invested heavily behind that performance to differentiate our products so that they're noticeably superior.

And we've funded that with ongoing productivity, the mindset of constructive disruption, and a new organization design that's much more agile and accountable. So when we put all that together, we get the kind of results that we're seeing. And the 99,000 men and women of P&G are executing that strategy beautifully, and I have a high degree of confidence that will continue as we move forward,

BRIAN SOZZI: John, as COVID-19 infections and deaths, unfortunately, as they have increased in recent months, have you started to see consumers come back out and restock their cupboards like they were in early March and April?

JOHN MOELLER: It varies by category and by country, as you can imagine. But in general, we never saw the destocking. So people have maintained very high levels of inventory in part because, as they go to stores, they're not always able to find their product on the shelf. And we'll see how that inventory dynamic plays out going forward. But again, as I mentioned, it's not just product moving into the pantry. It's product moving out of the pantry and being consumed to protect me and my family.

ALEXIS CHRISTOFORUS: John, a lot of what you sell at P&G are staples and we all can't live without them. But how important is another round of stimulus for Americans and for your consumer base at P&G do you think?

JOHN MOELLER: Well, a healthy consumer is certainly a benefit to our business and to other businesses. And I'll leave it there.

BRIAN SOZZI: John, on the-- just looking at your profit margins, one of the things I think investors still don't understand, and sure, you're gaining more volume, but you guys have done a pretty good job throughout the pandemic managing costs. A lot of other companies haven't done that. Where are you finding those cost savings?

JOHN MOELLER: We've been on a large productivity program for a number of years now. We're in the middle of our second five-year $10 billion cost takeout, all designed to give us the financial flexibility to invest in a superiority of our brands and categories where performance drives brand choice, and to simultaneously build margin. We're exercising that program up and down the income statement, through each element, and across the balance sheet. It's a very comprehensive program.

And if you think about how quickly the world is changing around us and the additional tools that we have available to get our work done, that offers significant opportunity-- automation and digitization of the factory floor. But not only the factory floor, the laboratory and the office environment. New production techniques that allow us to run significantly more product on the same equipment and do it with more flexibility and agility. So smaller batch sizes, just a whole host of opportunities that we've been accessing and that remain in front of us.

ALEXIS CHRISTOFORUS: I'm sure you saw this week-- there was a group of vocal investors who came out talking about toilet paper's impact on the forest and calling upon P&G to do more. I know that you have some very aggressive goals when it comes to climate change, but can P&G do more? And what are your plans for the near future?

JOHN MOELLER: We are staunchly committed to responsible sourcing of materials for our products, and that includes in the business that you've just described. 100% of the fiber that we purchase is certified as being from suppliers that are managing the forests in a responsible way. That's an independent, third-party certification. We do use recycled pulp as well.

But there isn't enough supply of recycled pulp to use it entirely, and we've focused it on where its use is best, which is in packaging material and the core of a roll of toilet paper. We can use that fiber up to seven times in those uses and get a much higher return, both environmentally and economically, than we can using that limited supply in tissue itself. But we are all ears. We're very open to dialogue, to any ideas that can help us, together, improve the health of the planet that we all depend on.

[SOUND EFFECT]

ALEXIS CHRISTOFORUS: And that was P&G CFO John Moeller. And Brian, we were talking about the strength in their portfolio across the board. I thought it was pretty surprising that even their grooming section, which we know has sort of lagged, did quite well, even though people are staying home more during the pandemic. Nice to see that they're grooming themselves.

BRIAN SOZZI: Yes, Alexis-- hashtag #StatOfTheDay. Their appliances sales, which are essentially just electric razors, up 30%. They put a lot of new-- a number of new products in the market, and they saw a benefit. But I do want to highlight this-- and I just wrote about this on my piece on Yahoo Finance. You can go out there and read it now. You're seeing sustained, strong demand by these consumer products companies. It's P&G. It's Reckitt that came out with strong earnings this morning and raised their guidance. They make Lysol.

I even saw an Albertsons earnings this morning, too. Sales up close to 14%. That's abnormal, but it might be the new normal behavior change. It remains the key thing for consumers. It wasn't just restocking in March. People are just trying to take better care of themselves and clean more stuff.

ALEXIS CHRISTOFORUS: That they are. And they're spending-- we're seeing it-- to do it.