P&G falls after warning as inflation hits it worse than rivals

Procter & Gamble Co. shares fell after its forecast for earnings and sales growth lagged Wall Street estimates and it warned about another year of elevated costs, showing that the consumer-products giant is struggling worse than some peers amid high inflation.

The company expects earnings per share in the current fiscal year, ending in June, to be about $5.93, it said Friday in a statement.

Analysts surveyed by Bloomberg had expected $6.06 on average.

In the closely watched metric of organic revenue growth, which strips out some items, the maker of Pampers diapers and Tide laundry products is targeting a range of 3% to 5% for the year, below the 5.2% projection of four analysts.

P&G’s outlook for the next 12 months looks worse than the 2022 projections from some of its rivals.

Unilever said this week that its sales growth will exceed a previously stated range of 4.5% to 6.5% as shoppers swallow higher prices.

Reckitt Benckiser Group raised its sales forecast for the year, as did Colgate-Palmolive. P&G’s fourth-quarter profit also came in below expectations.

“Overall we view the result as disappointing, particularly given consistency and outperformance in recent years,” said Mark Astrachan, an analyst at Stifel.

Shares of P&G fell 5% at 9:48 a.m. in New York. The stock had gained 6.7% over the past 12 months, compared with a 7.5% loss in the S&P 500 Index.

After a pandemic-driven boom, consumer-goods companies are adapting to a slowdown in the global economy.

Shoppers in the U.S. are starting to buckle under the pressure of inflation, with consumer spending barely rising in June after falling the prior month.

Recession fears are on the rise as gross domestic product shrank for a second straight quarter, and the savings rate declined to the lowest since 2009.

P&G has started to emphasize value in recent months as inflation surges, but on Friday it said that volumes fell 1% last quarter in part due to pandemic lockdowns in China and reduced operations in Russia.

Unit sales for all of P&G’s businesses declined or were flat in the quarter, with the grooming business that includes Gillette razors falling the most.

Excluding Russia, the company said overall volumes would have been essentially flat.

The Cincinnati-based company has raised prices several times in the past year to offset higher costs for components, transportation and labor.

Those price hikes drove organic revenue up 7% in the fourth quarter ended June 30, topping the 6.5% average analyst estimate.

But gross margin shrank to 44.6%, missing estimates, mostly due to higher commodity costs.

“Procter & Gamble’s 4Q volume erosion in three of five categories – as pricing rose 8% and demand was pressured – could worsen, given a $3.3 billion headwind in fiscal 2023 on unfavorable forex, higher commodity and freight costs,” Bloomberg Intelligence consumer analyst Deborah Aitken wrote.

“That could bring consensus downgrades on fears of pricing capability.”

The decline in volumes is notable because P&G often touts how it has products available at multiple price points.

While the company said it isn’t seeing shoppers trade down to cheaper items, the shift has started in other parts of the industry.

Church & Dwight Co., the maker of OxiClean and Arm & Hammer, said Friday that it’s seeing an accelerated move toward value products.

Colgate, which also reported earnings, said it isn’t seeing a lot of that change yet but expects more to come.

Adding to that pressure, P&G now expects to take a $3.3 billion after-tax hit from unfavorable foreign exchange, as well as higher commodity and freight costs in fiscal 2023.

The company had told investors in June to brace for $2.5 billion in costs, after tax.

The new tally amounts to a $1.33 hit to earnings per share, P&G said. The costs are expected to be most pronounced in the first half of the fiscal year.

“We expect another year of significant headwinds,” Chief Executive Officer Jon Moeller said.