After reporting a disappointing close to its fiscal year where sales were dampened by price cuts, Procter & Gamble announced it would raise prices on several products.
Squeezed by rising commodity costs, P&G said it would increase North American prices for paper products: Pampers diapers, Bounty paper towels, Charmin toilet paper and Puffs tissues. The average list price will rise 4 percent for Pampers and 5 percent on Bounty, Charmin and Puffs.
P&G’s fourth-quarter results landed Tuesday with a loud thud: beating on profit expectations, but disappointing on sales and issuing modest growth predictions for the coming 12 months.
While sales volumes increased overall, lower pricing wiped out those gains in four business units selling razors, toothpaste, detergents, diapers and related products.
Procter & Gamble branded items like Charmin, Tide, Pampers, Bounty and Downy displayed together.
Quarterly core earnings per share were 94 cents versus 90 cents forecast by analysts, according to Zacks Research. But total sales were $16.5 billion, roughly $50 million shy of the $16.55 billion predicted.
For the year ahead, P&G forecast it would grow organic sales, which excludes impacts from foreign exchange, acquisitions and divestitures, by 2 to 3 percent – the same range it predicted at this time last year and did not meet. The closely watched metric was up a tepid 1 percent in the latest quarter and fiscal year.
The sales turnaround in China, P&G’s No. 2 market after the U.S., was a bright spot: organic sales were up 10 percent in the quarter and up 7 percent for the year. That compares with 1 percent growth in fiscal year 2017 and a 5 percent drop in fiscal 2016.
Rising and shipping commodity costs cut P&G’s gross margin by 1.1 percent in the fourth quarter, indicating a $180 million profit impact.
P&G executives admitted raising prices carried risks, but expressed optimism it could continue to grow market share.
The sluggish results come at a time when P&G is under intensified pressure to jump-start sales growth. Hedge fund investor Nelson Peltz joined the board this spring after a bitter proxy fight last year over the pace of the company’s turnaround.
Peltz won almost half of shareholder votes, campaigning to slash management layers and reduce major business units from five to three. P&G employs 10,000 workers in Greater Cincinnati.
In June, Peltz said his turnaround proposals were under “serious consideration” by his fellow board members. P&G’s disappointing results may have strengthened his hand to lobby for potential cuts.
Still, P&G executives said they were announcing no “new initiatives” on Tuesday and stressed the company’s message of steady ongoing progress.
CEO David Taylor admitted “sales were softer than we want” during a call with analysts, but said the company was seeing market share improvement. He also vowed to press ahead with the company’s $10 billion cost-cutting drive by 2021.
“We know we have more work to do,” Taylor said.
For the year ended June 30, P&G reported a $9.8 billion profit – down 36 percent from the same period a year ago, largely due to a year-ago $5.2 billion windfall from the sale of 41 beauty brands. Total sales were $66.8 billion, up 3 percent from the same period a year ago.
P&G stock traded as low as $79.44, down 76 cents or 0.9 percent and as high as $80.95, up 75 cents or 0.9 percent.
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