Tide maker Procter & Gamble (PG.N) reported a surprise drop in quarterly sales for the second time in a row, as price-conscious consumers in its major markets, the United States and China, switched to cheaper brands.
An uncertain US economy – P&G’s growth engine – has pushed customers mainly from the lower-income group to rivals who are offering discounts, and cheaper private-label brands.
P&G’s organic sales in North America grew 4 per cent in the first quarter, compared with a 7 per cent rise seen a year earlier.
“The consumers aren’t feeling good out there after the bout of inflation we’ve had over the recent years, so we need an improvement in sentiment I think for a company like this to do better,” said Don Nesbitt, senior portfolio manager at F/m Investments, which has a stake in P&G.
Additionally, a prolonged property crisis and rising youth unemployment have resulted in a grim demand environment in China that impacted sales and volumes of P&G in the country.
“China, as we had expected, continues to be softer from a consumption standpoint … the market continues to be weak and will be weak…for a number of quarters to come,” CFO Andre Schulten said, adding that P&G, however, has a renewed plan for product launches and category expansions in the country.
P&G, which has been reeling in years of steep price hikes with some promotions, reported a 1 per cent rise in average prices across its product categories, and a 1 per cent gain in overall organic volumes in the reported quarter.
Higher prices helped P&G report adjusted profit per share of $1.93, above analysts’ average estimate of $1.90, according to data compiled by LSEG.
Brian Jacobsen, chief economist at Annex Wealth Management, said in recent years a relatively stronger consumer tilted the balance towards US growth being the main driver, but now, “that is trickier due to the competitive landscape in the US, especially with the consumer revolting against price hikes.”
Shares of P&G were down nearly 1 per cent in volatile premarket trading after the company reported a 0.6 per cent fall in first-quarter net sales to $21.74 billion, compared with analysts’ estimates of a 0.2 per cent rise to $21.91 billion.
P&G maintained its annual organic sales growth forecast of a 3 per cent to 5 per cent rise and core earnings per share expectation of $6.91 to $7.05.
Rival packaged food manufacturer Nestle (NESN.S) on Thursday cut its annual sales forecast, noting the demand environment would continue to remain weak and flagged pressure from weaker economies such as Latin America.
Analysts also expect P&G to see a drag to its volumes from slowing demand in Latin America, China and the Middle East.
In some Muslim majority countries, people have called for boycotting P&G products because of its connections to Israel.
