Attempts to rein in price hikes have not been enough to win back price-sensitive customers, not just for P&G but also for rivals Nestle and Unilever, which last week reported weaker-than-expected sales growth in the first half of the year.
“There’s a hole in the consumer sector. It’s getting harder to pass on price increases,” said Don Nesbitt, senior portfolio manager at F/m Investments, which holds P&G shares.
“Consumers, especially at the lower end, are becoming more cautious about their purchases.”
P&G has been spending heavily to launch new household products, such as Tide Evo detergent and lower-priced Love’s Platinum Protection diapers, to lure customers looking for cheaper, more environmentally friendly options. The company has also been ramping up promotions and discounts, which has lowered prices on some products and hurted own sales and revenue in its largest division, Fabric and Household. “P&G’s sales numbers support the notion that there’s a limit to how far it can raise prices without consumers pushing back,” said Brian Jacobsen, chief economist at Annex Wealth Management. “Promotions and discounts to attract consumers may increase sales, but they come at a cost.”
More expensive
But executives said on a conference call with Wall Street analysts that they haven’t seen any significant economic pressures among consumers, who are shifting from tape-on diapers to pull-up diapers, for example, and continuing to buy more expensive P&G products.
Chief Executive Officer John Mohler said on a conference call that P&G would benefit if consumers showed signs of financial hardship as people would stay at home more, wash dishes by hand and use more toilet paper.
P&G said total sales volume rose 1% in the fourth quarter ended June 30, driven by growth in its grooming business, which includes Venus razors, and its health-care division, which has brands such as fiber supplement Metamucil. Average prices also rose 1%, up from a 7% increase in the same period last year.
Net sales fell to $20.53 billion, below the $20.74 billion average forecast of analysts surveyed by LSEG.
P&G has also been hit by sluggish spending in China on everyday items. A consumer boycott of its flagship, expensive Japanese cosmetics brand SK-II, continues to hurt P&G’s performance in China, its second-largest market.
On a conference call with investors, executives said sentiment in China has not improved in the past six months or so.
P&G is also seeing a continuing boycott of Western brands in the Middle East.
The company reported adjusted earnings of $1.40 per share, beating estimates of $1.37, mainly due to lower raw material costs. The company said it plans to repurchase $6 billion to $7 billion of its common stock in fiscal 2025.
The company now expects core earnings to rise to $6.91 to $7.05 a share in fiscal 2025, beating analysts’ expectations of $6.97. It also expects full-year sales growth of 2 to 4 percent, compared with an expected 3.04 percent increase. (Editing by Ananya Mariam Rajesh in Bengaluru and Jessica DiNapoli, Arun Koyuru and David Holmes in New York)
