• December 9, 2022

Breakingviews – P&G’s pricing power hangs by a floss – Reuters

  Reading time 3 minutes

NEW YORK, Oct 19 (Reuters Breakingviews) – Procter & Gamble , which sells everything from diapers to laundry detergent, offers a lens into how consumers are feeling about their marginal dollar. First-quarter earnings show a company whose pricing power is hanging on by a piece of floss. That suggests people are about to ditch some of their few remaining small joys, even when it comes to necessary goods.

The $300 billion consumer goods company led by Jon Moeller said on Wednesday that net sales increased 1% to $20.6 billion, and much of that increase came from jacking up prices. Organic sales, which strip out foreign exchange impacts and revenue from deals, was up 7% mainly because of a 9% increase in charging more. The good news is that volume fell just 3% even as prices rose, and a big chunk of that decline came because of less business in Russia. It suggests that the Cincinnati-based company is maintaining some pricing power.

But P&G’s units aren’t performing equally. Sales grew in three out of five categories, but mostly for things like toothpaste, baby wipes and laundry detergent. Grooming sales fell, while beauty was flat. Together that suggests people aren’t yet ready to give up their favorite brands for daily necessities, but on the margin will forgo them for vanity-related items.

On top of that, costs are rising faster than sales, because of input prices for materials and rising transportation fees. Plus, the rest of the fiscal year, which ends in June, isn’t promising. P&G lowered guidance, saying total sales would be down 1% to 3% year-over-year, instead of flat to up 2%.

That’s an indication that shoppers’ habits are changing rapidly, and they soon might start pulling back on necessary goods, too, either by buying generic or cutting back on what they use. Fitch Ratings said on Tuesday the U.S. consumer is strong, but that a recession is likely in 2023 – something bank bosses have also suggested. P&G is showing the effects of an economic downturn could be hitting consumers fast.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Corrects first paragraph to say first-quarter earnings instead of third-quarter earnings.)

Follow @alpgomez on Twitter

CONTEXT NEWS

Procter & Gamble on Oct. 19 reported net sales of $20.6 billion for the quarter ended Sept. 30. Sales increased 1% from the same period a year ago and surpassed estimates of $20.3 billion, according to Refinitiv. Net earnings attributable to the company were $3.9 billion, a 4% year-over-year drop.

Editing by Lauren Silva Laughlin and Sharon Lam

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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