Procter & Gamble Co (PG.N) announced quarterly earnings that were below estimates on July 29 and forecast slow sales growth, citing consumer setbacks, rising commodity and transportation, and retailer reluctance to lift prices.
Shares of P&G slid as much as 6% in the morning as the company missed quarterly earnings estimates for the first time in at least five years, Refinitiv data showed.
Andre Schulten Chief Financial Officer cautioned in a call with media that P&G, a pacesetter for consumer products, is witnessing “some resurgence” of shoppers purchasing cheaper store brand items in various categories. Private label brands in Europe are thriving, he said in a call with analysts.
Consumers are also purchasing less after rounds of price spikes the company has implemented to cover its costs and cushion profit margins.
“You see consumers may be scrimp for a period of time, use up inventory, and that’s what we’re seeing.”
Schulten added that retailers’ reactions to price hikes delivered this month were “what you would expect.”
“Nobody is pleased about the continued inflationary trends that we’re seeing,” he said, adding that discussions continue to be “constructive.”
One of P&G’s largest retail consumers is Walmart (WMT.N), accounting for almost 15% of its sales since last year. The retailer has cautioned it will fetch much less this year compared to what it previously expected.
Waves of the pandemic, the Russia-Ukraine war, and clogged shipping ports have enmeshed global supply chains and prompted a surge in prices of commodities including resin, pulp, and polypropylene, hurting profits of consumer goods makers.
P&G Chief Executive Officer Jon Moeller said in a statement:
“As we look forward to fiscal 2023, we expect another year of significant headwinds.”
P&G, maker of a broad roster of products including Tide laundry detergent, Charmin toilet paper, Pampers diapers, and Bounty paper towels, forecast average fiscal 2023 earnings per share of $5.93, lesser than analysts’ view of $6.02. It forecast a hit of about $3.3 billion from higher freight and commodity costs and a stronger dollar.
A stronger greenback generally dampens profits of companies such as P&G that have widespread global operations and huge sales in foreign currencies. On an adjusted basis, the company made $1.21 per share in the fourth quarter ended June 30, falling short of analysts’ estimates of $1.22 per share, based on IBES data from Refinitiv.
P&G said net sales grew 3% to $19.52 billion, topping analysts’ estimates of $19.41 billion, as it drew on higher prices.
Prices across P&G’s brands, from Old Spice to Crest, grew on average around 8% in the fourth quarter, while sales volumes slumped about 1%.
Andrew Choi, a portfolio manager at P&G investor Parnassus Investments, stated:
“One of the things that hurt them this quarter, is they didn’t want to or couldn’t push price as much.”
Analyst at Alliance Bernstein wrote in a research note that store brand paper goods, such as toilet paper, and cleaning products are gaining popularity, threatening P&G. The company also lost market share in laundry products, the analysts wrote.
The company forecast fiscal 2023 organic sales growth of 3% to 5%, against more than 7% in 2022, indicating a decline in consumer demand.