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Procter and Gamble Co.
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P&G Earnings Slip as Higher Prices Sap Sales Volumes P&G Earnings Slip as Higher Prices Sap Sales Volumes By Sharon Terlep Dow Jones After lifting prices to new heights, Procter & Gamble Co. reported lower quarterly profit and declining sales volumes as the rising costs of Tide detergent and other staples prompted consumers to cut back on purchases at the end of 2022. Sales volumes fell 6% at P&G -- the biggest quarterly drop in years -- with declines at each of the company's five major business units in the three months ended Dec. 31 compared with a year earlier. P&G increased prices by 10% in the period, helping the company report a 5% boost in organic sales, which exclude currency swings and acquisitions. P&G is among the first consumer-product giants to report results for the December quarter, with investors looking for clues on the direction of the global economy and households' ability to continue to spend in the midst of high inflation and rising interest rates. "The world seems to want everything to be better, as do I," P&G Chief Executive Jon Moeller said in a call with analysts. "That's not the reality. There is an incredible amount of uncertainty." Asked on the call why P&G opted against raising its profit forecasts even though currency volatility and commodity costs had a smaller-than-anticipated impact in the latest quarter, Mr. Moeller rattled off a list of potential pitfalls facing the company and global economy this year. Nobody, he said, can predict the pace of recovery in China, the future pace of inflation, consumer confidence or when commodity and currency markets will stabilize. The company's latest quarterly results were in line with Wall Street's expectations, according to estimates compiled by FactSet. P&G said Thursday that it expects higher organic sales growth for the fiscal year ending in June but that profit would likely be at the low end of its forecast. Shares of P&G, which have outperformed the S&P 500 index over the past year, slipped 1% in Thursday trading. "We remain right on track with where we thought we would be," P&G finance chief Andre Schulten said in an interview. Executives said the sales volume declines generally reflected some product categories shrinking because of higher prices rather than P&G losing customers to rivals or discount brands. Mr. Schulten said that P&G had anticipated the volume declines and that half of the drop was due to a combination of P&G ending sales of all but essential items in Russia and retailer inventory reductions in the U.S., Europe and in China. By the end of the year, Mr. Schulten said, retailer inventory wasn't always keeping up with consumer demand. The company estimates that growth in the consumer-products market will continue but slow to 3% to 4% growth, from a 5% to 6% range. Pricing will likely continue to drive growth, while volumes are set to fall further, the company said. P&G executives said their goal is to perform a few percentage points better than the market. Mr. Schulten said shoppers remain willing to pay more for high-end products, though more are looking for deals. Demand is up both for items that come in smaller package sizes and for bulk offerings at club stores. "Consumers are holding up globally relatively well," he said. P&G is helped by a portfolio composed largely of necessities, he said. People "don't stop washing their hair or doing their laundry," he said. P&G will increase prices on some items into this year, he said, as the company continues to grapple with higher costs. The goal, he said, is "careful pricing executed well, in combination with innovation." The company is cutting costs, though it also is adding capacity in high-demand categories, namely in feminine-care products, in which demand still outstrips supply. The company said it also faces higher costs as suppliers, still working to recover from higher commodity costs over the past year, push for pricier contracts. U.S. inflation, which eased to 6.5% in December from 9.1% in June as measured by the consumer-price index, has been running near its highest levels in decades. P&G, like its rivals and many other companies, raised its prices substantially last year to offset higher costs for fuel, labor and commodities. Consumers have started to pull back, with U.S. retail spending falling in November and December. At P&G, prices in the quarter ended in December increased by 13% in the division that makes Tide, by 11% in the division that houses Gillette and by 8% in the division that makes Pampers diapers. P&G said Thursday that high commodity and supply-chain costs remain a challenge for the company and that Covid-related struggles in China dented sales of a number of products. Overall, P&G reported net income of $3.93 billion for the quarter, down 7% from a year earlier. Net sales were $20.8 billion, down 1% from the prior year. On a per-share basis, P&G said it had earnings of $1.59, matching Wall Street's consensus estimate. |
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