Procter & Gamble raised profit margins for the first time in two years, as the world’s largest maker of household goods has raised prices for consumers faster than its own costs in recent months.
But executives at the consumer goods bellwether objected to the notion that shoppers were determined to maximize profits at the expense of shoppers – a phenomenon known as “greed” – and warned there was no “broad-based relief” in input costs.
Prices across its portfolio of consumer products, including Fairy washing-up liquid, Oral-B toothbrushes and Pampers nappies, rose by a tenth in the last quarter.
As a result, financially strapped consumers bought fewer products from P&G and the company’s sales fell 3 percent in the three months to the end of March.
However, higher prices offset volume declines and helped the Cincinnati-based company generate net sales of $20.1bn, up 4 per cent from the same period a year earlier.
And despite rising costs of goods and materials, P&G’s gross margin rose 1.5 percentage points to 48.2 percent — its first improvement since 2021.
The results pushed shares of P&G, which are little changed in a year so far, up 4 percent in morning trading in New York.
While P&G’s margin boost was mainly driven by higher prices, productivity savings also helped. Net income rose 2 percent to $3.42 billion.
Andre Schulten, chief financial officer, said both price increases and productivity initiatives were “absolutely critical for us to continue operating in this environment.”
He said the company, whose products include Head & Shoulders shampoo, Tambox tampons and Gillette razors, is “starting to dig our way out” following margin erosion in previous quarters.
P&G said on Friday it faces a $3.5bn “headwind” in the financial year ending in June due to unfavorable foreign exchange and higher materials and equipment costs.
The expected hit was $200mn less than the total forecast in January due to less severe inventory and freight costs than previously expected.
Even so, Schulten said prices for some commodities, such as pulp, are “going down a bit,” while other energy-intensive commodities — including caustic soda and ammonia — are rising.
“There is no broad-based relief in terms of input costs,” he said, adding that recent margin improvement has been “modest”.
The CFO was not impressed with P&G’s pricing plans in the coming months, although he hinted that the bad weather for shoppers may be over.
He noted that while the “cost environment” was still “unhelpful,” it had not deteriorated significantly in recent weeks.
On the back of the quarterly results, P&G said it expects annual sales to grow 6 percent on an organic basis, compared with the previous range of 4 to 5 percent.
However, it forecast earnings per share to be at the “low end” of the range previously provided. The company expects diluted net earnings per share to be flat and up 4 percent.