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Procter & Gamble price hikes take sales from strength to strength
Global Banking & Finance Review®
Company
By Jessica DiNapoli and Ananya Mariam Rajesh
(Reuters) -Procter & Gamble Co’s customers continued to show little resistance to repeated price hikes, helping the Tide detergent maker boost its annual sales forecast and third-quarter margins.
The company also beat Wall Street targets for quarterly results and sweetened the pot for investors by raising the upper end of its 2023 share buyback target to between $7.4 billion and $8 billion, sending its shares up 2% in premarket trading.
The maker of Pampers diapers, Pantene shampoo and Oral-B toothpaste raised average prices across product categories by 10% during the quarter, and saw overall volumes fall just 3%.
Consumer goods makers, typically the last to see demand impacted by economic slowdowns, have hiked prices repeatedly to pass on steep input costs stemming from supply-chain snags and worsened by the Ukraine crisis.
P&G’s gross margin rose by 150 basis points from a year ago, with a 470-basis point boost from the increased pricing.
But shrinking consumer wallets in the face of high inflation have fanned concerns of how much longer rising prices will be tolerated before triggering a switch to cheaper, private-label brands.
The decline in P&G’s volumes sold is “obviously driven by pricing”, said CFO Andre Schulten on a media call.
“We see consumers being a bit more careful with dosing and drawing down inventories over time.”
The fabric and home-care unit, P&G’s biggest segment, saw sales volumes fall 5%, with average price rising to 13%.
The company lowered its annual cost estimate related to commodity and freight expenses to about $3.5 billion from $3.7 billion, but Schulten said there is “no broad-based relief in input costs”.
“Some (commodities) are down… Others are going up. Every highly energy intensive material, if you think about caustic soda or ammonium, it’s actually increasing in pricing.”
The company expects fiscal 2023 organic sales growth of about 6%, compared with its previous forecast for a 4% to 5% increase.
P&G maintained its annual earnings forecast of flat to a 4% rise.
(Reporting by Ananya Mariam Rajesh and Jessica DiNapoli in New York in Bengaluru; Editing by Devika Syamnath)
Gross margin is a company's revenue from sales minus its cost of goods sold, expressed as a percentage of revenue. It indicates how efficiently a company uses its resources to produce goods.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
A share buyback occurs when a company purchases its own shares from the marketplace, reducing the number of outstanding shares and often increasing the share price.
Consumer demand refers to the desire of consumers to purchase goods and services at given prices. It is influenced by factors such as income, preferences, and price changes.
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