P&G Is Adapting To A New Reality Where It Can No Longer Rely On Price Hikes

Author: Upwallstreet | April 22, 2024 01:39pm

Last Friday, The Procter & Gamble Company (NYSE:PG) reported its fiscal third quarter financials, reflecting its ongoing struggle to bring back shoppers after scaring them off during two years of price hikes. 

Fiscal Third Quarter Guidance

For the quarter ended on March 31st, net sales rose 1% to $20.20 billion, coming short of $20.41 billion that LSEG expected. However, fiscal third-quarter net income 11% YoY to $3.75 billion or $1.52 per share that did surpass LSEG’s estimate of $1.41 per share. 

Dissapointing Sales Were The Results Of P&G’s Failure To Restore Volume Growth

There were no nationwide prices hikes during the quarter, but compared to 2023’s comparable quarter, prices were up 3% YoY. With the price hike slowdown, net sales only rose 1% YoY to $20.2 billion. Excluding acquisitions, divestitures and foreign currency, organic sales expanded 3% YoY. But, for the second consecutive quarter, quarterly volume remained flat. Back in October, P&G guided for returning to volume growth this fiscal year, but three quarters in, this still isn’t the case, except three of its divisions. Namely, the beauty, grooming, along with fabric and home business did experience volume growth of 1%, 2% and 1%, respectively. However, health care and baby, along with feminine and family care segments reported that volume continued to decline, which P&G attributed to higher prices, along with a weaker cold and flu season. There’s also the geographical aspect as China, its second largest market, continued to struggle with softer demand. Fortunately, in P&G’s largest market, the U.S., volume grew 3% YoY, reflecting strong demand on the home front as U.S. consumers are not willing to trade down. 

Full Year Guidance

The consumer products giant guided for core net earnings per share growth between 10% and 11%, lifting its prior range that was between 8% and 9%. It also lifted its unadjusted earnings growth forecast from previous 1% drop to flat to a new range from 1% to 2%. Sales growth forecast between 2% and 4% was maintained. 

Without price hikes, P&G is facing a new reality.

P&G grew its profits on a YoY basis despite the slowdown in China and the Middle East conflict, but only due to price hikes. In an environment where it is becoming increasingly difficult to raise prices, some might argue that P&G’s hopes of returning to volume growth are not justified. The benefits from price hikes are gone and P&G has one more quarter to prove its ability to boost overall volume, but Chief Financial Officer Andre Schulten did state that volumes are sequentially increasing, which does provide hope.

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Posted In: PG