P&G earnings slide as higher prices hurt sales volume

P&G earnings slide as higher prices hurt sales volume

After prices pushed to new highs, Procter & Gamble Co. PG -0.38% reported lower quarterly profit and declining sales volumes as the rising cost of Tide laundry detergent and other staples prompted consumers to rein in their purchases in late 2022.

Sales volumes at P&G fell 6% — the largest quarterly decline in years — with declines in all of the company’s five major business units in the three months ended December 31 from a year ago. P&G increased prices by 10% during the period, which helped the company report a 5% increase in organic sales, which excludes currency movements and acquisitions.

P&G is among the first consumer goods giants to report results for the December quarter, with investors looking for clues about the direction of the global economy and households’ ability to keep spending amid high inflation and rising interest rates.

“The world seems to want things to get better, just like me,” P&G chief executive Jon Moeller said in an interview with analysts. “That’s not the reality. There is an unbelievable level of uncertainty.”

When asked why P&G decided against raising its earnings forecasts even though currency fluctuations and raw material costs had less of an impact than expected in the most recent quarter, Mr. Moeller rattled off a list of potential pitfalls the company and the global economy are facing this year. No one, he said, can predict the pace of China’s recovery, the future pace of inflation, consumer confidence or stabilization in commodity and foreign exchange markets.

The company’s most recent quarterly results were in line with Wall Street expectations, according to estimates compiled by FactSet. P&G said Thursday it expects higher organic sales growth for the fiscal year that ends in June, but earnings would likely come in at the lower end of its guidance. Shares of P&G, which have outperformed the S&P 500 index over the past year, fell 1% in Thursday trading.

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“We’re staying exactly where we thought we were going to be,” P&G chief financial officer Andre Schulten said in an interview. Executives said the decline in sales volume was generally due to some product categories shrinking due to higher prices, rather than P&G losing customers to competitors or discount brands.

Mr. Schulten said P&G anticipated the volume decline and that half of the decline was due to a combination of P&G final sales of all items except essential items in Russia and inventory reductions at retailers in the US, Europe and China. At the end of the year, Mr Schulten said, retailers’ inventories weren’t always keeping pace with consumer demand.

The company estimates that growth in the consumer staples market will continue, but will slow to 3% to 4% from a range of 5% to 6%. Pricing will likely continue to drive growth while volumes will continue to fall, the company said. P&G executives said their goal is to outperform the market by a few percentage points.

The WSJ’s Sharon Terlep explains the role of elasticity in a company’s decision to increase prices. Photo illustration: Adele Morgan

Mr Schulten said shoppers remain willing to pay more for high-end products, even as more are looking for deals. Demand is increasing both for items in smaller pack sizes and for bulk offers in club stores.

“Consumers are holding up relatively well around the world,” he said. P&G is backed by a portfolio made up mostly of necessities, he said. People “don’t stop washing their hair or doing their laundry,” he said.

P&G will raise prices on some items this year, he said, as the company continues to struggle with higher costs. The goal, he said, is “careful pricing, well executed, combined with innovation.”

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The company is cutting costs but also adding capacity in high-demand categories, namely feminine hygiene products, where demand still exceeds supply. The company said it is also facing higher costs as suppliers, still working to recover from higher raw material costs over the past year, push for pricier contracts.

US inflation, which fell to 6.5% in December from 9.1% in June as measured by the CPI, is hovering near its highest level in decades. P&G, like its peers and many other companies, has raised its prices significantly over the past year to offset higher fuel, labor, and raw material costs. Consumers have started to retreat, with US retail spending falling in November and December.

At P&G, prices for the quarter ended December rose 13% in the division that makes Tide, 11% in the division that houses Gillette and 8% in the division that makes Pampers diapers.

P&G said Thursday that high raw material and supply chain costs remain a challenge for the company and that Covid-related battles in China impacted sales of a range of products.

Overall, P&G reported net income of $3.93 billion for the quarter, down 7% year over year. Net sales were $20.8 billion, down 1% year-over-year. On a per-share basis, P&G said it had earnings of $1.59, in line with Wall Street’s consensus estimate.

Write to Sharon Terlep at [email protected]

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