Business Standard

Procter & Gamble raises sales outlook, says demand is stabilising

The outlook and quarterly results outpaced expectations in key metrics, highlighting that the US economic slowdown appears to be relatively contained

Photo: Bloomberg

Photo: Bloomberg

Bloomberg

Listen to This Article

By Daniela Sirtori-Cortina and Leslie Patton

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 maker of Bounty paper towels and Herbal Essences shampoo said organic sales, which exclude currency fluctuations, should grow about 6% from the prior year, up from its previous forecast of as much as 5%. 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% in the quarter 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 stabilize, which is what we wanted to see,” Schulten said, adding that because of high labor and commodity costs, “we are not in a position to raise the bottom-line forecast at this point.”

Shares rose as much as 2.5% Friday in premarket trading in New York.Excluding Russia, the volume decline would have amounted to 2%, Schulten said Friday on a call with reporters. Rebounding consumption in China following its reopening after strict Covid-19 lockdowns also helped limit the unit sales decline.

Yet 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.

What Bloomberg Intelligence Says

“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.”

— Deborah Aitken, senior consumer analyst

Organic sales in the quarter rose 7%, powered mostly by a 10% jump in prices that helped offset a decline in unit sales. But volume in the company’s beauty segment inched up 1% thanks in part to new launches. Health-care goods also experienced a slight advance in volume during the respiratory-illness season, while organic sales for the division rose 9%. 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%. Analysts expected 46.9%.

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Apr 21 2023 | 6:52 PM IST

Explore News