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With Little Opposition, Procter & Gamble Raises Prices Once More, Which Is Good For Sales

With Little Opposition, Procter & Gamble Raises Prices Once More, Which Is Good For Sales
Customers, particularly those in the US, continued to accept price increases without protest, which helped Procter & Gamble Co. increase its third-quarter margins and sales projection for its Tide detergent.
Manufacturer of Oral-B toothpaste, Pampers diapers, and Pantene shampoo boosted average prices by 10% during the quarter while only seeing a 3% decline in overall volume.
P&G officials stated that the reopening in China, their second-largest market after the United States, helped to temper volume decreases and that they anticipate "a number of twists and turns along the way" as the country resumes.
In a conference call, executives identified new goods that are promoting growth, including Native body wash, Gillette Labs exfoliating razors, and improved cardboard packaging.
However, customers switched their spending to private label competitors who are delaying price increases, resulting in sharper volume drops of 7% in Europe, according to CEOs.
"A concern for the company, which is taking price globally including the U.S., is at what point do we see (consumer demand) not work in their favor," said Samantha Palm, a portfolio manager at San Francisco-based Parnassus Investments. "It's not that we're saying taking price is not justified, but taking price in what could be a recessionary environment in 2023, 2024 could have implications for consumers."
According to Palm, this could mean that P&G experiences "more significant discounting" or greater volume decreases.
The Cincinnati-based company's quarterly results above Wall Street expectations, and to further appease investors, it increased the upper limit of its share repurchase target for 2023 to between $7.4 billion and $8 billion. As a result, its shares rose 3.9% to $156.73 in early afternoon trade.
Consumer goods producers, who are normally the last to experience a drop in demand during economic downturns, have frequently raised prices to pass on high input costs brought on by supply-chain hiccups that were made worse by the Ukraine conflict.
With a 470-basis point boost from higher pricing, P&G's gross margin increased by 150 basis points from a year ago.
Concerns about how long consumers will put up with growing prices before moving to less expensive, private-label brands have grown as a result of consumers' shrinking finances in the face of high inflation.
Pricing "obviously drives" the reduction in P&G's sales volumes, according to chief financial officer Andre Schulten.
"We see consumers being a bit more careful with dosing and drawing down inventories over time," he said. He later added that shopper behavior is returning to normal, and that he does not anticipate consumers stocking up their pantries like they did during the pandemic.
The largest division of P&G, fabric and home care, witnessed a 5% decline in sales volume and a 13% increase in average price.
Sales in China increased by 2% after declining the previous two quarters as a result of pandemic lockdowns. According to corporate executives, sales of the $100 face serum SK-II, which is well-known in Asia, are on the upswing. However, Chinese consumers have yet to return to travel-related shopping, such as duty-free shops in airports, which negatively impacts the brand's performance.
P&G is "trying to not let expectations get too far ahead because China does move the needle" for the firm, according to Jefferies analyst Kevin Grundy.
The corporation reduced its estimated annual cost for goods and commodity costs from $3.7 billion to around $3.5 billion, but Schulten claimed there is "no widespread relief in input costs."
"Some (commodities) are down. ... Others are going up. Every highly energy intensive material, if you think about caustic soda or ammonium, it's actually increasing in pricing."
In contrast to its earlier prediction of a 4% to 5% increase, the company now anticipates organic sales growth of roughly 6% for fiscal 2023.
P&G kept its outlook for annual earnings at flat to a 4% increase.

Christopher J. Mitchell

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