Procter & Gamble reports lowest organic profit growth in six quarters

The maker of Tide and Pampers sees pandemic habits persisting, as it reports strong growth from its fabric and home-care unit. But increased costs slowed organic earnings.

P&G owns laundry brands including Tide.
P&G owns laundry brands including Tide.

Consumer goods giant Procter & Gamble continued to benefit from heightened pandemic-driven hygiene and cleaning fastidiousness from consumers, as it reported a 4% increase in organic sales for the third quarter of its financial year. This represents a slowdown from 8% growth in the second quarter and 6% a year ago.

Operating income was up 10% year on year for the quarter. The beauty and fabric and home-care sectors drove the growth, even as other sectors, such as grooming and baby products, reported more tepid numbers. 

Despite the positive revenue numbers, P&G, which owns brands such as Tide and Pampers, was buffeted by increased costs and saw organic earnings grow by the slowest pace in at least the last six quarters.

P&G has maintained its outlook for fiscal 2021, expecting organic sales growth in the range of 5% to 6% compared with the previous financial year.

The company now expects a headwind from commodity costs of approximately $125 million (£89.8m) after-tax versus the previous fiscal year. 

Ecommerce now represents 14% of P&G’s sales globally.

“In aggregate, our market share in ecommerce is about equal to brick-and-mortar [sales],” COO Jon Moeller told analysts on a call discussing the earnings report.

Meanwhile, he also disclosed that marketing spend had increased 7% year-on-year.

"A strong support for our brands is part of our model and will continue to be part of the model going forward," he added. 

In terms of its business units, the fabric and home care segment was the star of the show. Home-care organic sales increased by a percentage in the high teens, driven by increased consumer demand for home cleaning products during the pandemic, innovation, increased marketing investments and positive mix due to the disproportionate growth of the North America region, the company noted in a statement. 

"As consumers spend more time at home due to the pandemic, we've seen dynamics play out differently across different categories," Moeller disclosed to analysts.

"More time at home benefits our family, fabric and home-care businesses. It negatively impacts grooming, SK-II, deodorants, adult incontinence. So, Covid impacts are different: some positive and some negative across categories."

P&G has begun increasing prices of products under its baby care, feminine care and adult incontinence product categories in the U.S. to offset higher commodity costs. The price hikes will vary based on brand and sub-brand, but will be in the range of mid- to high-single digits on a percentage basis, and will come into effect in mid-September.

In addition, P&G has reported a mixed impact from the pandemic on its businesses worldwide. For example, while North America market growth has increased, the opposite has happened in Asia, Middle East and Africa region.

P&G has struggled with disruptions across multiple channels, as markets were hit by waves of COVID-19 and this played out differently globally. For instance, In Japan, department stores lack beauty consultants, which has hit the company's premium SK-II business. Similarly, P&G Professional away-from-home business has been affected by low hotel and restaurant occupancy.

According to Moeller, P&G has "seen some supply chain benefits from higher throughput, as we simplify the number of SKUs, the costs have increased to source materials, maximise safety and importantly, to transport finished goods".

As the firm plans for life post-pandemic, it predicts some old habits will stick. "The relevance of our categories and consumers' lives potentially increases," he said. "We will serve what will likely become a forever altered cleaning, health and hygiene focus, for consumers who use our products daily or multiple times each day."

This article first appeared on Campaign Asia

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