Commentary

P&G Tops Expectations As It Focuses On Household Staples

Thanks to higher prices and a revamped product line, Procter & Gamble delighted analysts yesterday with higher-than-expected sales and earnings figures.

Following the release of first-quarter 2020 results, "shares of the world's biggest personal care goods company rose 4.1% in premarket trading," write Reuters’ Richa Naidu and Soundarya J.

“P&G, which makes Tide detergent, Pampers diapers and Pantene shampoo, has been raising prices and investing in new products across most of its business, hoping to claw back market share from upstart brands that have cropped up in recent years,” they continue.

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“P&G is clearly firing on all cylinders. P&G raised its full-year guidance across the board, which is not typical so early in the fiscal year, and evidence management has conviction that momentum will continue,” said Wells Fargo analyst Bonnie Herzog, Naidu and J tell us.

“Here’s what the company reported,” CNBC’s Lauren Hirsch writes, “compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

“Earnings per share: $1.37, adjusted, vs. $1.24 expected

“Revenue: $17.80 billion vs. $17.42 billion expected

“This exceeds even our heightened expectations," RBC analysts said. 

P&G’s continued market share gains, however, "may force competitors such as Clorox, Unilever and Kimberly-Clark to step up their competition in an effort to break P&G’s momentum,” Hirsch adds.

“We are better positioned now than in 2008 to handle a downturn,” CFO Jon Moeller told analysts on an earnings call that has been transcribed by Seeking Alpha.

“Moeller said P&G has largely stopped selling products that tend to suffer amid consumer belt-tightening, such as makeup and perfume. Instead, the company has focused on developing pricier offerings in essential products such as laundry soap and toothpaste,” Sharon Terlep writes for The Wall Street Journal.

“Consumers’ willingness to pay higher prices for household staples, with increases driven largely by P&G as the industry’s biggest player, has fueled the company’s growth,” Terlep continues.

“The biggest boost in revenue for the recently ended quarter was seen in P&G’s Beauty division, which reported a 10% increase in organic sales versus the same period a year ago. That was followed closely by Health Care, which saw a 9% rise in organic sales,” reports Barrett J. Brunsman for the Cincinnati Business Courier.

“Fabric and Home Care organic sales rose by 8%, while the Baby, Feminine & Family Care division of P&G saw organic sales rise by 5%. The Grooming segment, which includes Gillette razors, saw organic sales rise by 1%,” Brunsman adds.

Meanwhile, P&G’s Always sanitary products brand “will remove the Venus symbol, historically used to represent the female sex, from its products to be inclusive of transgender and nonbinary customers. Transgender activists and allies had publicly urged Procter & Gamble to redesign its pad wrapper without the gender symbol, a circle atop a cross. Among their arguments were that not all people who menstruate are women and that not all women menstruate,” CNN’s Elizabeth Wolfe and Michelle Krupa report.

“‘For over 35 years Always has championed girls and women, and we will continue to do so. We're also committed to diversity & inclusion and are on a continual journey to understand the needs of all of our consumers,’” P&G said in a statement yesterday, Wolfe and Krupa add.

On the conference call, P&G CFO Moeller “hailed the company’s sales growth as payoff for past investments in product quality, packaging, marketing and retail execution. Meanwhile, Reckitt [Benckiser]’s new chief executive, who recently joined from Pepsi, criticized the prior management for failing to invest sufficiently in many of the same areas,”  Aaron Back and Carol Ryan observe for The Wall Street Journal.

Indeed, Reckitt’s new boss, Laxman Narasimhan, referred to a string of errors within the company’s largest health division and “claimed that the business had taken its 'eye off the ball'." "Narasimhan also accused his predecessor of running "the engine too hot," Ashley Armstrong reports for the The Times of London.

“The takeaway is similar to what has been seen in the food aisles: Amid intense competition, only the most focused companies, willing and able to spend on innovation, quality and marketing, can prosper,” Back and Ryan conclude.

Not that that’s any different than it was when P&G patented and marketed Ivory as purer than other soaps in 1879.

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