Price hikes to come: P&G Q1 ‘22 net sales rise but ‘challenging’ costs hit profits

By Kacey Culliney contact

- Last updated on GMT

P&G says it is rolling out price hikes across parts of its portfolio in the US and will also review pricing in other markets in the near-term to offset rising commodity and freight costs [Getty Images]
P&G says it is rolling out price hikes across parts of its portfolio in the US and will also review pricing in other markets in the near-term to offset rising commodity and freight costs [Getty Images]

Related tags: P&g, financial results, Procter & gamble, commodity costs, Supply chain, freight, pricing, premium beauty

Personal care giant Procter & Gamble (P&G) has reported a net sales rise for the first quarter (Q1) of fiscal 2022, though profits suffered due to a challenging cost environment – an ongoing issue it plans to overcome with price hikes.

Yesterday, P&G announced net sales of €17.46bn ($20.3bn) for Q1 fiscal 2022, up 5% on the previous year, largely driven by “disproportionate volume growth”​ in North America, health care and premium products. Net sales during the quarter rose across the entire business, up 8% in healthcare; 5% in beauty; 5% in grooming; 5% in fabric and home care; and up 3% in baby, feminine and family care. Volumes grew most in health care and sat flat in beauty, tallying up a total volume growth of 2% for Q1 across the business.

Net profit, however, declined 4% to €3.62bn ($4.12bn) due to higher than anticipated commodity and freight costs, P&G said.

A ‘challenging cost and operating environment’ – commodities and freight

David Taylor, chairman, president and CEO of P&G, said the results were solid considering the “challenging cost and operating environment”.

Speaking to analysts on the company’s earnings call yesterday, Andre Schulten, CFO of P&G, said there was a short-term need to “manage through this challenging cost environment”.

Short-term disruption to material availability, rising commodity costs and increasing freight costs were an industry-wide concern, Schulten said, and would likely continue into the rest of the year.

“Based on current spot prices, we now estimate a $2.1bn [€1.8bn] after-tax commodity cost headwind in fiscal 2022. Freight costs have also continued to increase; we now expect freight and transportation costs to be an incremental $200m [€171.8m] after-tax headwind in fiscal ‘22,” ​he said.

“…This is $500m [€429.5m] after-tax incremental cost pressure versus our initial outlook for the year.”

Product price hikes to ‘offset’ cost headwinds

To offset a portion of these headwinds, Schulten said P&G would implement price increases and productivity savings across its business.

Price increases, he said, would largely happen in the US across portions of P&G’s portfolio in baby care, feminine care, family care, home care and fabric care, many of which had already been put in place last month, with more due over the next 90 days. Some price hikes would also happen in grooming, skin care and oral care and in other markets outside the US, though P&G was not taking a one-size-fits-all approach, he said, and decisions would be made, market-by-market and product-by-product.

“As always, we will look to close couple price increases with new product innovations, adding value for consumers along the way. As we said before, we believe this is a temporary bottom line rough patch to grow through, not a reason to reduce investment in the business.”

“…Success in our highly competitive industry requires agility that comes with the mindset of constructive disruption, a willingness to change, adapt and to create new trends and technology that will shape the industry for the future. In the current environment, that agility and constructive disruption mindset are even more important,”​ he told analysts.

Superiority and performance to lead future strategies

Responding to an analyst’s question about pricing and continued investment, Schulten said: “We continue to drive marketing spend. We continue to drive investment in superiority to sustain our balanced growth strategy for the mid- and long-term.”

“…We’re going into this pricing round with 75% of our portfolio truly superior, probably 80% by the time most of these price increases hit. And that should give us a relatively strong position with consumers to deliver value in their mind, even as we take pricing,” ​he said.

Jon Moeller, current vice chairman and incoming president and CEO, said the company was in an “inflationary cycle”​ but well positioned to stay strong given P&G’s portfolio sat in daily-use categories where performance drove brand choice.

“Consumers through the pandemic have shifted their consumption in those categories towards trusted performing brands. And you see that even in what’s happening with private label market shares, as an example; down in the US over the past three, six, 12 months, down in Europe over the same periods of time. None of that’s a guarantee for the future, but you start in a very good position with a strong superiority profile, as Andre said, and a strong innovation programme and investment programme to continue that work,”​ Moeller told analysts.

The company maintained its full-year fiscal 2022 guidance of 2-4% overall growth.

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