P&G raises annual core profit forecast on resilient demand, price hikes

PROCTER & Gamble raised its annual profit forecast on lower commodity costs and as consumers, particularly in the US and Europe, kept buying its pricey Tide detergent and Dawn dish soap.

Even though P&G’s third-quarter net sales fell short of analysts’ expectations, the company has been able to boost its bottom line, building on the benefits from raw material prices coming down from the peaks seen during the pandemic.

Volumes grew around 3 per cent in its top market, the US, chief financial officer Andre Schulten said on a media call. He said consumers were not switching from P&G’s products to nonbranded products.

“The consumer is not trading down,” Schulten added.

Don Nesbitt, senior portfolio manager at P&G investor ZCM, however, said cost-conscious consumers were turning to value-based products.

P&G’s strong sales momentum in the US and Europe was overshadowed by lower sales of its high-end SK-II skin care line, a top seller in China, due to weaker consumer spending, along with customers shunning it due to environmental concerns.

Schulten said the company has “reached the bottom of the trend” in China with SK-II, which sells for around US$100 a bottle. Third-quarter sales of the product fell around 30 per cent in Greater China.

P&G now expects a benefit of about US$900 million after-tax from favourable commodity costs for its fiscal year 2024, which ends in June, compared with its earlier forecast of an US$800 million benefit.

The consumer goods giant sees core earnings per share to rise between 10 per cent and 11 per cent in this fiscal year, above its prior forecast of 8 per cent to 9 per cent growth.

Excluding items, P&G earned US$1.52 per share, topping estimates of US$1.41 per share.

Third-quarter net sales rose to US$20.20 billion from US$20.07 billion a year earlier, but fell short of analysts’ average expectation of US$20.41 billion, according to LSEG data.

Shares of the company were down about 2 per cent in early trading.

“The sales miss, but better forecast has been met with skepticism. They may be holding out high hopes for an ability to increase volumes in an environment where it’s harder and harder to increase prices,” said Brian Jacobsen, chief economist at Annex Wealth Management, which owns shares in P&G.

“Banking on headwinds abating seems like the triumph of hope over reality,” he added.

In a post-earnings call, Schulten also said volume trends in some countries, such as Egypt, Saudi Arabia, Turkey, Indonesia and Malaysia, have remained soft since the start of heightened tensions in the Middle East.

The focus is now also shifting to the company’s ability to increase overall volumes as the benefits from price hikes to sales growth are waning.

P&G reported overall flat volumes in the third quarter, while average prices across its product categories rose 3 per cent.

Schulten added that P&G is not increasing prices further and volumes are sequentially increasing “which is exactly what we would want to see.” REUTERS