P&G forecasts annual profit below estimates as costs surge

Gillette razors, a brand owned by Procter & Gamble, is seen for sale in a store in Manhattan, New York City, U.S., June 29, 2022. REUTERS/Andrew Kelly/File Photo

July 29 (Reuters) – Procter & Gamble Co (PG.N) forecast full-year earnings below analysts’ estimates on Friday, as the maker of Tide detergent struggles with surging transportation and commodity costs, sending its shares down about 4% in premarket trading.

Andre Schulten, P&G’s chief financial officer, also warned in a call with media that the Cincinnati-based company, a bellwether for consumer products, is seeing “some resurgence” of consumers buying cheaper store brand items in some categories.

Shoppers are also reacting to the rounds of price hikes the company has taken to cover its costs and protect its margins.

“You see consumers maybe scrimp for a period of time, use up inventory, and that’s what we’re seeing,” Schulten said.

Waves of the pandemic, clogged shipping ports and the Russia-Ukraine war have snarled global supply chains and led to a jump in prices of commodities including pulp, resin and polypropylene, pinching profits of consumer goods makers.

Companies’ price hikes to offset those cost increases are also now being met with some resistance from major retailers, which are worried about waning consumer demand due to red hot inflation.

“As we look forward to fiscal 2023, we expect another year of significant headwinds,” P&G Chief Executive Officer Jon Moeller said in a statement.

The maker of Pampers diapers forecast average fiscal 2023 earnings per share of $5.93, below analysts’ view of $6.02, with the company estimating an about $3.3 billion hit from a stronger dollar and higher commodity and freight costs.

A stronger greenback typically eats into profits of companies such as P&G that have sprawling global operations and convert foreign currencies into dollars.

On an adjusted basis, the company earned $1.21 per share in the fourth quarter ended June 30, missing analysts’ estimates of $1.22 per share, according to IBES data from Refinitiv

The company said net sales rose 3% to $19.52 billion, beating analysts’ estimates of $19.41 billion, as it benefited from higher prices of its detergents and homecare products.

Prices across P&G’s brands, from Crest to Old Spice, rose on average about 8% in the fourth quarter, while sales volumes fell about 1%. Schulten said that the company has announced another round of pricing in the three months ended in September in the United States in all categories.

The company forecast fiscal 2023 organic sales growth of 3% to 5%, compared to over 7% in 2022, signaling a slowdown in consumer demand.

Reporting by Uday Sampath in Bengaluru and Jessica DiNapoli in New York; Editing by Maju Samuel and David Evans

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