Consumer goods giant Procter & Gamble posted a surprise drop in fourth-quarter sales, as demand for its Charmin toilet paper and Pampers diapers slowed globally despite efforts to keep prices in check.
Attempts to raise prices more slowly have not been enough to win back price-conscious customers for not just P&G, but also for its rival Nestlé and Unilever as they last week reported first-half sales growth below expectations.
"(There is) a hole in the consumer sector...it is getting more difficult to pass on price increases," said Don Nesbitt, senior portfolio manager at F/m Investments, which has stake in P&G.
"The consumer is becoming more discerning on their purchases, especially the lower-end consumer."
After choosing to scale back more price hikes, P&G has been spending heavily to launch new daily-use products like Tide Evo detergent tiles and lower-cost diaper brand Luvs Platinum Protection, trying to woo customers looking for cheaper options.
The company has also been increasing promotions and offering discounts, resulting in lower prices for some of its products, which took a toll on its organic sales at its largest division, fabric and home care.
"P&G's sales support the theme that you can only push price so far until consumers pushback," said Brian Jacobsen, chief economist at Annex Wealth Management.
"If they use promotions and discounts to get the attention of consumers, that could help volumes, but that comes at a price."
Performance Highlights
Fourth-quarter net sales for P&G slipped to $20.53 billion from $20.55 billion a year ago. Analysts had expected $20.74 billion, according to LSEG data.
On an adjusted basis, it earned $1.40 per share, beating estimates of $1.37. The company said it expects to repurchase $6 to $7 billion of common shares in fiscal 2025.
P&G reported a 1% rise in overall volumes in the fourth quarter, while the average prices across its product categories also rose 1%.
Outlook
The consumer goods giant expects core earnings to rise between $6.91 and $7.05 in fiscal 2025, compared with analysts' expectations of $6.97 per share.
P&G expects sales growth in the range of 2% to 4% for fiscal 2025, compared with analysts' expectation of a 3.04% rise.
Jon Moeller, chair of the board, president and chief executive officer, stated, “As we look forward to fiscal 2025, we expect to deliver strong organic sales growth, EPS growth and free cash flow productivity – each in-line with our long-term growth algorithm.
“We remain committed to our integrated strategy – a focused product portfolio of daily use categories where performance drives brand choice, superiority (of product performance, packaging, brand communication, retail execution and consumer and customer value), productivity, constructive disruption and an agile and accountable organisation – all aimed at delivering sustainable, balanced growth and value creation.”
News by Reuters, additional reporting by ESM.
