Procter & Gamble's Earnings Show a Resilient Consumer Despite Price Hikes. Is the Dividend King Stock a Buy?

Procter & Gamble (NYSE: PG) just had its best day in more than six years, with the stock jumping 5.6% on Thursday after the company delivered a surprisingly strong fiscal first quarter in a challenging environment.

During a time when many of its customers are struggling with inflation and a high cost of living, the household products giant reported 4% organic sales growth. That performance also represents a significant bounce from flat organic sales growth in the previous quarter, which helps explain why the stock had its best day since the market started soaring in the recovery from the pandemic crash in March 2020.

Organic volume was up 2.4%, and the company delivered strong results in beauty, fabric, and home care. Overall revenue rose 4% to $23.3 billion, which topped estimates at $22.8 billion.

Despite strong organic sales growth, core gross margin fell by 150 basis points, primarily due to higher commodity costs, reflecting higher oil prices than a year ago. Nonetheless, its productivity savings program helped improve selling, general, and administrative margins, and operating margin fell 70 basis points to 25.5%.

On the bottom line, the company reported core earnings per share of $2.00, up from $1.99 in the quarter a year ago, and ahead of the consensus at $1.89.

Image source: Getty Images.

Why the stock soared on the news

P&G maintained its full-year core EPS guidance of $6.89-$7.11, and the company expects headwinds from higher commodity costs and oil prices to increase over the rest of the year.

Nonetheless, the company seemed to reverse earlier concerns about slumping growth, doing so at a time when many consumer brands are struggling. Four percent organic growth is outstanding for any mature consumer staples business, and that's the figure investors should focus on.

The news also came on a day when tech stocks plunged, and the sell-off may have beckoned more investors to rotate into P&G, which is seen as one of the most rock-solid, defensive stocks on the market.

Is P&G a buy?

The parent of Tide, Crest, and Pampers is a Dividend King, having increased its dividend for 70 years in a row. It now offers a dividend yield of 2.6%.

Still, P&G stock has been mostly flat over the last five years, and its commentary about increasing headwinds shows that investors should temper their expectations for the rest of the year.

For an investor looking for defensive, dividend-paying stocks or a safe place to ride out the volatility in the AI sector, P&G is a good choice. However, in the current environment, the upside potential for the stock seems moderate at best. There's a reason the stock's 6% gain yesterday was its best rally in several years.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.