P&G raised prices 10%, and the volume of products sold fell more than expected
By Tomi Kilgore
Earnings matched expectations and full-year sales outlook was raised, while estimate of inflation and foreign-exchange headwinds was trimmed to $3.7 billion
In the second quarter, Procter & Gamble Co. raised prices even more it did than last quarter, which led to a deeper-than-anticipated drop in demand -- but the branded consumer goods giant is OK with that, as it still managed to keep pace with its peers.
Investors didn't seem OK with the fiscal second-quarter results, however, as concerns over the drop in shipment volume appeared to overshadow the fact that earnings met expectations and the full-year sales outlook was raised. The stock (PG) fell 0.8% in midday trading, putting it on track for the lowest close since Nov. 18.
Before Thursday's opening bell, P&G reported sales for the quarter through Dec. 31 that fell 0.9% from a year ago, to $20.77 billion. That edged past the average analyst estimate compiled by FactSet of $20.73 billion but still marked the first year-over-year decline in five years.
The reason it wasn't a bigger decline was because P&G said its prices were 10% higher than last year -- which was more than the previous quarter's 9% hike in prices and well above the annual growth rate of consumer prices in December of 6.5%. Some analysts were expecting prices to rise in the 9% range.
The higher pricing helped mask an overall decline in shipment volume of 6%. Some analysts were expecting a decline in the 4% range.
The volume decline indicated that "elasticities," or how much demand is affected by changes in price, were becoming less favorable. Meanwhile, on the post-earnings call with analysts, the company maintained that elasticity remained "benign."
One reason P&G is not concerned about the volume decline is because volume share, or how the company is performing relative to its peers, is holding up globally. And in the U.S., which is P&G's "biggest and most important" market, volume share actually accelerated by 0.5% over the past three months, including a 0.8% improvement over the past month.
It was that volume-share performance that gave company executives the confidence to lift the sales forecast. The company now expects fiscal 2023 sales to be down 1% to flat from a year ago, compared with previous guidance of down 3% to down 1%.
Stifel Nicolaus analyst Mark Astrachan said P&G's shares "are likely to underperform" given the sales and volume results and outlook. He reiterated his hold rating on the shares.
P&G also reported net income for the latest quarter that fell to $3.93 billion, or $1.59 a share, from $4.22 billion, or $1.66 a share, a year ago. Excluding nonrecurring items, core earnings per share (EPS) of $1.59 matched the FactSet consensus. That may have disappointed investors, as P&G had beaten profit expectations in 19 of the past 20 quarters.
P&G trimmed its estimate for the full-year cost of raw material inflation, foreign currency fluctuations and higher freight expenses to $3.7 billion, or $1.50 a share, from the previous estimate provided in October of $3.9 billion, or $1.57 a share.
However, the company kept its full-year EPS growth outlook unchanged, at flat to up 4%.
The stock has rallied 11.5% over the past three months, while the Consumer Staples Select Sector SPDR exchange-traded fund (XLP) has advanced 5.6% and the S&P 500 has tacked on 5.5%.