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Procter & Gamble delivered stronger-than-expected earnings in its second quarter the same way it did in the first: raising prices, yet still keeping its household staples moving through store check-outs. Now the consumer goods giant says it can keep sales growing for the next half-year even if it slows down the price hikes.
P&G, which makes everything from Dawn to Braun, posted 16% year over year earnings per share growth, beating analyst expectations by about 8%, according to Zacks research. That’s after accounting for its $1.3 billion devaluation of Gillette, which P&G bought in 2005—before cheaper competitors like Dollar Shave Club and Harry’s even existed. Throughout the 2010s, those competitors shaved away Gillette’s supermajority market share.
While it relied on price increases to drive a 4% jump in organic sales, P&G noted that sales volume grew in grooming, home care, and family care, which includes Bounty and Charmin. Fittingly, its hair care products also enjoyed higher volume.
To keep those sales up, P&G will need to keep pumping up the volume, because the company is considering slowing future price increases.
“More stable foreign exchange and commodity costs will ideally reduce the need for additional large price increases,” CEO Jon Moeller said on Tuesday’s earnings call.
P&G is not the only consumer packaged goods maker talking about easing up on price hikes, according toJon Andersen, an analyst with investment bank and wealth manager William Blair.
“The entire CPG industry is going through a period of transition from what’s been a couple of years of price-led growth,” he said. Now, companies will need to focus on growing sales by actually selling more stuff, he added.
P&G appears confident it will, reiterating that it expects to hit 4% to 5% organic sales growth for the year, which is roughly what it did this quarter thanks to price increases.
After raising prices 7% and 4% in the first two quarters, P&G may be able to cut its price increases to about 3% over the second half of the fiscal year, Andersen predicted. Part of the reason he expects an increase at all is that P&G can charge a premium for some of its most unique products, such as Dawn Powerwash or Ultra Soft, Charmin’s wavy-edged toilet paper.
The long game in China: P&G’s growth was driven by stronger organic sales in North America (5%) and Europe (7%). But organic sales dropped 15% YoY in the country’s second-largest market, greater China. That’s worse than the 6% annual decline P&G reported in the first quarter, as the country suffers through slower-than-expected growth that has, as CFO Andre Schulten noted in Tuesday’s earnings call, made Chinese consumers even more pessimistic.
Schulten and Moeller refuse to take their eye off the long-term prize that’s the growing Chinese middle class, a group of consumers P&G believes will grow by 250 million people to reach 700 million over the next five years.
“We continue to be very optimistic” about the company’s future in China, Schulten said.