- CFO says company used promotions to bolster a new Tide product
- Organic sales increased at the slowest pace in six years
Procter & Gamble Co. shares fell the most in more than four years after quarterly sales missed analysts’ projections as the maker of Pampers diapers and Tide detergent slows its pace of price increases.
Organic sales, which strip out the impact of foreign exchange and other items, rose 2% in the quarter ended June 30, the company said Tuesday, which is the slowest in six years. Analysts expected growth of about 3.4%, according to the average estimate compiled by Bloomberg. P&G’s forecasts for adjusted earnings and revenue in the current fiscal year, which began at the start of July, were roughly in line with market projections.
“The magnitude of the miss is a genuine surprise,” wrote Callum Elliott, an analyst at Bernstein, referring to the company’s organic sales growth.
The company’s shares slid as much as 7% in New York trading, the largest intraday drop since March 2020. Through Monday’s close P&G has gained 16% this year, slightly more than the S&P 500 Index.
The results show that P&G’s price-driven growth of recent years is tapering off as consumers pare back their purchase of essential goods and groceries. The company’s prices were 1% higher in the quarter compared with a year earlier — the lowest increase in nearly three years. Kimberly-Clark Corp., the owner of the Kleenex brand, last week also reported quarterly sales that missed Wall Street’s estimates amid slowing price increases.
For P&G’s largest sales segment of fabric and home care, prices fell in the quarter from a year earlier amid more US promotions for the company’s new Tide detergent formula, designed for cold water stain removal.
“We want to drive trial, and we want to drive visibility,” Chief Financial Officer Andre Schulten said in an interview, referring to P&G’s efforts to boost the detergent. “In order to do that, we use promotion and display investment.”
P&G forecasts an organic sales increase of as much as 5% in the current fiscal year. That compares with the average estimate for growth of about 3.9% compiled by Bloomberg. Chief Executive Officer Jon Moeller told analysts on an earnings call that the first couple of quarters of this fiscal year “are going to look a bit more like the one that we just completed.”
The company’s organic growth target “seems achievable” but weaker-than-expected pricing raises concerns, wrote Bloomberg Intelligence analysts Diana Gomes and Deborah Aitken.
P&G is also facing pressure in China, where consumer confidence remains weak. The skin and personal care category was hurt by lower sales of SK-II, the premium line of facial products, in the quarter. The brand will take another quarter or two to return to growth in Asia, Schulten said on the call.
“Overall market sentiment in China has not improved,” Schulten said, adding that the company expects the recovery there to take time. He also said that sales volumes in Egypt, Saudi Arabia, Turkey, Indonesia, Malaysia and Russia have remained soft.
Earnings per share, excluding some items, were $1.40, slightly higher than the average analyst estimate. Gross margin rose from a year ago, helped by lower commodity costs and higher prices. However, the company is seeing strong demand and limited supplies of certain types of pulp, driving costs higher for the current year.
Volume in North America also rose by 4%, Schulten said.
The company’s division that includes diapers posted a 1% decline in organic sales in the quarter amid weaker demand and market-share losses for the Luvs brand. Schulten said the company chose to delay its new Luvs Platinum diapers launch this year due to limited production capacity.
“We weren’t able to innovate on the Luvs brand — which is the mid-tier or the value-tier brand — because of supply chain constraints,” he said. With the Platinum diapers now being sold, “we expect that business to come back,” he added.
Written by: Leslie Patton @Bloomberg
The post “P&G Sales Miss Estimates as Price Increases Finally Slow Down” first appeared on Bloomberg
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