P&G Says Consumer Demand Is Stabilising Despite Higher Prices

Procter & Gamble Co. raised its sales projection for the fiscal year ending in June, citing higher prices and a slight increase in demand for some of its products. The shares rose the most in three years.

The maker of Bounty paper towels and Herbal Essences shampoo said organic sales, which exclude currency fluctuations, should grow about 6 percent from the prior year, up from its previous forecast of as much as 5 percent. Yet P&G didn’t budge on its profit outlook despite easing costs, reiterating its expectation that earnings per share will be at the lower end of a $5.81 to $6.04 range.

The outlook and quarterly results outpaced expectations in key metrics, highlighting that the US economic slowdown appears to be relatively contained even as elevated inflation restricts household spending. The Head & Shoulders shampoo manufacturer said total unit sales fell 3 percent in the quarter that ended in March. That decline is less than what analysts expected and smaller than the one P&G posted the previous quarter. The volume of products sold increased in the US, chief financial officer Andre Schulten said in an interview.

“Our volumes are starting to stabilise, which is what we wanted to see,” Schulten said, adding that because of high labour and commodity costs. “We are not in a position to raise the bottom-line forecast at this point.”

The shares rose as much as 4.8 percent in New York trading, bringing the stock’s year-to-date advance to about 4 percent. That’s less than the gain of the benchmark S&P 500 Index.

Excluding Russia, the volume decline would have amounted to 2 percent, Schulten said Friday on a call with reporters. Rebounding consumption in China following its reopening from strict Covid-19 lockdowns also helped limit the unit sales decline. Still, P&G expects its volume declines to continue in the current quarter.

“[There’s] no broad-based relief in terms of input costs,” Schulten said on the call. Costs have eased for transportation, warehousing and some commodities, but others, such as ammonium, are still on the rise. And while pulp prices have declined, some mills are shutting down for maintenance. Moreover, foreign exchange rates are still a detriment, Schulten said in the interview.

“Lower costs and lighter foreign-currency headwinds should play an increasing role, expanding gross margin, while productivity savings help boost operating margin — even if volume remains subdued for the short term.”

Organic sales in the quarter rose 7 percent, powered mostly by a 10 percent jump in prices that helped offset a decline in unit sales. But volume in the company’s beauty segment inched up 1 percent thanks in part to new launches. Healthcare goods also experienced a slight advance in volume during the respiratory-illness season, while organic sales for the division rose 9 percent. P&G sells Vicks cough and cold products.

Europe drove the volume declines in businesses such as fabric and baby care, P&G said. One of the reasons is that store brands have higher household penetration in Europe than in the US, and many have been slower to raise prices than branded counterparts, Schulten said.

Consumers have also become more attentive about usage, stretching out products, including shampoo and cutting back some on more discretionary products, such as fabric enhancers.

Higher prices and savings from improved efficiency helped the company expand its gross margins in the quarter, Schulten said in the interview. The metric, a measure of profitability, landed at 48.2 percent. Analysts expected 46.9 percent.

By Leslie Patton and Daniela Sirtori-Cortina

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