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Procter & Gamble (PG) earnings Q2 2023

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Procter & Gamble reported year-over-year declines in revenue and profit on Thursday, as higher prices look to offset declining sales volumes and foreign exchange headwinds.

Here’s how P&G performed in its fiscal second quarter of 2023 compared with what Wall Street anticipated, based on a median of analysts’ estimates compiled by Refinitiv:

  • Adjusted earnings per share: $1.59 versus an expected $1.59
  • Total revenue: $20.77 billion versus expected $20.73 billion

For the three-month period ended Dec. 31, the corporate reported net income of $3.9 billion, or $1.59 per share, excluding items, down from $4.22 billion, or $1.66 per share, a yr earlier.

Net sales fell to $20.77 billion, a 1% decrease from the previous yr, which topped analyst’s projections of $20.73 billion.

The corporate’s organic revenue, which excludes the impact of foreign currency, acquisitions and divestitures, increased 5% in the course of the fiscal second quarter. That rise was a results of higher pricing, which outweighed shrinking consumer demand.

The entire company’s divisions reported declining sales volume within the quarter, despite seeing increases in organic sales in consequence of upper pricing. Its grooming division, which houses brands like Gillette and The Art of Shaving, and which has historically underperformed for the corporate, reported no sales growth — its volume declines completely canceled out its higher prices.

P&G executives noted on a call with the media that consumer demand is chargeable for not less than half the 6% sales volume decrease. The remaining volume decline was as a consequence of reining in business in Russia because the war in Ukraine persists, together with inventory reductions in China, its second-biggest market, as Covid lockdowns disrupted the region.

As China loosens its Covid restrictions, the market is primed for a rebound. P&G’s chief financial officer, Andre Schulten, expects that the country’s reopening will return the market to mid-single-digit growth.

“When exactly that happens is tough to predict,” Schulten said on the media call.

The Cincinnati-based consumer goods giant, which owns brands like Crest toothpaste, Tide laundry detergent and Pampers diapers, forecast in October alongside its first-quarter report a $3.9 billion hit to its fiscal yr 2023 as a consequence of “unfavorable” foreign exchange rates and pricier raw materials, commodities and freight. In consequence, the corporate lowered its guidance, despite posting a solid first quarter.

The corporate now anticipates headwinds of $3.7 billion for the rest of its fiscal yr, it said Thursday, marking a slight improvement. However it warned those headwinds would proceed to squeeze P&G’s gross margins, which saw a 160 basis point decrease in the course of the second quarter versus a yr ago.

P&G is doubling down on its price mountain climbing strategy whilst shrinking consumer demand continues to erode sales volume. Schulten said consumers have reacted to cost hikes “generally higher than expected,” especially in nondiscretionary categories like feminine care and cleansing supplies.

“Consumers don’t stop washing their hands or doing their laundry,” Schulten said.

The corporate will further increase prices in the approaching months.

P&G barely lifted its outlook for 2023 sales growth to a variety of 4% to five% from a previous range of three% to five%. The corporate lowered its estimated impact of foreign exchange to five% from 6%.

The corporate doesn’t expect that the mild improvements on foreign exchange within the short term will impact its bottom line. As a substitute, Schulten said on a call with analysts that the additional money flow will probably be directed toward reinvesting in parts of the business, a few of which it slashed in previous quarters.

For instance, P&G tightened its marketing budget for laundry detergent last quarter as a consequence of supply chain issues. This quarter, the corporate touted marketing as a driver of growth.

It attributed growth in its baby-care brands, which was up 10% within the U.S., to the undeniable fact that it has “completely shifted the way in which they run their media.” It has transitioned away from TV marketing to digital platforms with a view to higher goal consumers with babies.

Still, because the macroeconomic backdrop appears to enhance, P&G stays cautious heading into its second half.

“The world seems to want every thing to be higher, as do I,” said CEO Jon Moeller on the analyst call. “That is really not the fact. … It is not the time to be taking guidance to the highest range of possibility.”

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