P&G Sees Decrease in Earnings Due to Price Increases Impacting Sales

After increasing prices, Procter & Gamble Co. saw a decrease in their stock.

P&G reported lower quarterly profit and declining sales volumes as the rising costs of Tide detergent and other staples prompted consumers to cut back on purchases at the end of 2022.

Sales volumes at P&G fell by 6% in the most recent quarter, the biggest drop in years. This decline was seen across all five of the company's major business units. Despite this, P&G was able to report a 5% increase in organic sales (which exclude currency swings and acquisitions) thanks to a 10% price increase.

P&G is set to report its results for the December quarter, with investors eagerly awaiting any clues on the direction of the global economy and households' ability to keep spending despite high inflation and rising interest rates.

P&G Chief Executive Jon Moeller said that while the world seems to want everything to be better, there is an incredible amount of uncertainty. Moeller added that he shares the world's desire for improvement, but cautioned that reality may not meet those expectations.

When asked why P&G chose not to raise its profit forecasts despite seeing less impact from currency volatility and commodity costs than expected, Mr. Moeller listed a number of potential risks facing the company and the global economy this year. He noted that it is difficult to predict how quickly China will recover, what the future pace of inflation will be, how confident consumers will feel, or when commodity and currency markets will stabilize.

P&G's latest quarterly results were in line with Wall Street's expectations, according to estimates compiled by FactSet. P&G said Thursday that it expects higher organic sales growth for the fiscal year ending in June but that profit would likely be at the low end of its forecast. P&G shares have outperformed the S&P 500 index over the past year, but slipped 1% in Thursday trading.

P&G finance chief Andre Schulten said in an interview that the company remains on track with its sales goals. He said that the sales volume declines generally reflect some product categories shrinking because of higher prices, rather than P&G losing customers to rivals or discount brands.

Mr. Schulten said that P&G had anticipated the volume declines and that half of the drop was due to a combination of P&G ending sales of all but essential items in Russia and retailer inventory reductions in the U.S., Europe and in China. He added that by the end of the year, retailer inventory wasn’t always keeping up with consumer demand.

The company estimates that growth in the consumer-products market will continue but slow to 3% to 4% growth, from a 5% to 6% range. Pricing is expected to remain the primary driver of growth, while volumes are forecast to decline further. P&G executives said their goal is to outperform the market by a few percentage points.

Mr. Schulten said that shoppers are still willing to pay more for high-end products, but that more shoppers are looking for deals. He said that demand is up for both small package sizes and bulk offerings at club stores.

P&G is doing relatively well globally thanks to a portfolio composed largely of necessities, according to CEO David Taylor. People continue to need to wash their hair and do their laundry, even during tough economic times, he said. This helps the company weather downturns and continue to grow.

P&G plans to raise prices on some items this year in order to offset higher costs, said company CEO David Taylor. The goal is to balance pricing with innovation, he said.

The company is cutting costs and adding capacity in high-demand categories, such as feminine-care products. The company said it also faces higher costs from suppliers who are still recovering from higher commodity costs and pushing for pricier contracts.

Inflation in the United States has been running near its highest levels in decades, easing to 6.5% in December from 9.1% in June as measured by the consumer-price index. P&G, like its rivals and many other companies, raised its prices substantially last year to offset higher costs for fuel, labor and commodities. However, consumers have started to pull back, with U.S. retail spending falling in November and December.

P&G's prices increased across its divisions in the quarter ended in December, with the biggest increases seen in the Tide and Gillette divisions (13% and 11%, respectively). The Pampers division saw a more modest price increase of 8%.

P&G has said that high commodity and supply-chain costs remain a challenge for the company, and that Covid-related struggles in China have dented sales of a number of products.

P&G reported net income of $3.93 billion for the quarter, down 7% from a year earlier. Net sales were $20.8 billion, down 1% from the prior year. On a per-share basis, P&G said it had earnings of $1.59, matching Wall Street’s consensus estimate.