August 10, 2022

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Procter & Gamble issues a warning after a strong quarter

Procter & Gamble issues a warning after a strong quarter

Procter & Gamble Company a company

PG -6.18%

Ltd., a maker of Tide detergent and Pampers diapers, expects the slowest sales growth in years as the tightening of consumer belts begins to affect household staples.

The forecast comes after the Cincinnati consumer products giant on Friday reported its biggest annual increase in sales in 16 years due to price increases it put on mainstays from toothpaste to toilet paper.

Procter & Gamble’s organic sales, a closely watched metric that excludes deals and currency movements, rose 7% for the year ending June 30, the highest since 2006. Shoppers have paid much higher prices.

But executives said consumers are beginning to cut production amid rising inflation. They are using the products they have stockpiled during the pandemic or are delaying replenishment of supplies. Sales volume fell 1% last quarter.

“For us, the economic slowdown is not yet visible,” said Andre Schulten, chief financial officer of Procter & Gamble. “We are also not naive, we see the pressure on the consumer.”

P&G expects organic sales to grow 3% to 5% for the current year, the lowest level since 2019 when the company posted a 5% increase. The company expects consumer goods industry growth to slow by a percentage point or more from last fiscal year’s 5% growth.

John Mueller, CEO of Procter & Gamble, said in an interview that consumers are starting to switch to cheaper, private label alternatives, a trend already underway in the food and beverage industry. He described the shift as small but noticeable.

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Mr. Mueller said he was confident that growth, while more subdued compared to the past few years, would remain strong as high levels of employment combined with household balance sheets enable consumers to continue spending on necessities while they cut costs elsewhere.

“There is no inherent reason for people to stop buying modestly priced consumer products, daily-use necessities where performance is important,” he said. “You have to look elsewhere for signs of consumer pressure.”

The Consumer Confidence Index and the Consumer Confidence Index both attempt to measure the same thing: consumer sentiment. The Wall Street Journal explains why the Federal Reserve is keeping a close eye on consumer confidence in 2022. Illustration: Adele Morgan

P&G shares are down more than 6%.

P&G’s results and forecasts largely reflect messages coming from other large consumer brands. companies including

coca cola a company

And the

McDonald’s corp.

And the

Kimberly Clark corp.

Sales this week posted gains driven by higher prices, and executives said they would keep them Pass the increased costs to shoppers So far. However, some executives also said consumers are starting to show signs of stress, are trading cheaper brands or reducing the amount they buy.

The world’s largest consumer packaged goods company by sales, P&G has largely outperformed competitors amid the pandemic, especially in the US

competitors Show signs of gaining ground.

Colgate Palmolive a company

On Friday, it said it now expects a larger-than-expected organic sales gain, and forecast an increase of 5% to 7% for the calendar year, up from 4% to 6%. last week,

Kimberly Clark

And the

Unilever

PLC also raised sales forecasts for the calendar year.

Church and Dwight a company

Demand for low-cost laundry detergents is accelerating, CEO Matthew Farrell said Friday, while people are abandoning electric toothbrushes for manual options. “Consumers are making choices to further expand their budget,” he said.

The central question is how consumers and retailers respond to price increases. P&G said Friday that it has announced to retailers another round of price increases, in mid-single-digit ratios, that will take effect at the end of the summer.

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Bernstein analyst Callum Elliott said in a research note that analyzed retail data that Procter & Gamble, after more than four years of market share gains, lost share in the four-week period ending July 16 compared to a year ago. He said the losses were in every category except for camels.

“While prices are escalating, the consumer also continues to adjust to the new reality,” he said.

Mr. Mueller said Procter & Gamble continues to gain market share on a large scale in the United States and globally.

Organic sales were up 7% in the quarter ending June 30, with prices up 8% on average. P&G attributed the 1% drop in sales volumes primarily to Covid-related shutdowns in China and deliberate downsizing of its Russia business amid the war in Ukraine.

Procter & Gamble reported revenue of $19.5 billion for the quarter, up 3% from a year ago. Diluted net earnings per share was $1.21, up 7%.

The company expects diluted net earnings per share to be between flat and 4% higher for the fiscal year as it faces an expected $3.3 billion in foreign exchange rates and higher material and shipping costs.

write to Sharon Terlep at [email protected]

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