How P&G Beats Inflation and Wins on Wall Street

Procter & Gamble Company (PG), a global leader in branded consumer and packaging products, reported “solid” financial results for the first quarter of fiscal 2023 in a “very difficult cost and operating environment,” according to Chairman and Chief Executive Officer Jon Moller .

“These results allow us to maintain our guidance ranges for organic revenue and EPS growth for the fiscal year despite ongoing significant headwinds,” Moeller said in a statement following the release of Q1 results.

Net sales for the first quarter of fiscal 2023 were $20.6 billion, an annual increase of 1 percent. However, EPS came in at $1.57, down two percent from a year earlier.

Those numbers, which beat analysts’ estimates, come amid what Moeller put it “a difficult cost and operating environment,” which means quite a bit.

One is commodity cost inflation, fueled by supply chain constraints, labor shortages and a strong dollar. They’ve increased the cost of doing business in several industries, which is affecting the second line and depressing gross margins.

And second, consumer inflation is squeezing family budgets, making it difficult for most companies to pass the higher cost of goods on to consumers through price increases.

But not for companies with a portfolio of branded products and an agile organizational structure like P&G. This has enabled the company to build and maintain momentum even in difficult times.

“We remain committed to our integrated strategies of a focused product portfolio, superiority, productivity, constructive disruption and an agile and accountable organizational structure,” explained Moeller. “These strategies have enabled us to build and sustain strong momentum. They remain the right strategies to meet the near-term challenges we face and continue to deliver balanced growth and value creation.”

Chelsea Wiater, portfolio manager at EFG New Capital, was impressed with the company’s performance.

“Despite high raw material and transportation costs, significant headwinds in foreign exchange rates and supply chain and income statement inflation, P&G has reported better-than-expected results on both top-line and bottom-line terms,” ​​she told the International Business Times . “It has allayed fears from concerned investors that the company would lose significant market share amid deteriorating macroeconomic conditions in the fiscal first quarter.”

Over the years, P&G has built multiple advantages to weather tough times and be a winner in the consumer brand and packaging retail space.

One of these advantages is the branding, development and marketing of high quality products such as Head & Shoulders Shampoo, Tide Laundry Detergent, Pampers, Gillette and Venus. Additionally, they allow the company to charge premium prices over its competitors and pass higher production costs on to consumers, as it did last year.

Another benefit is scaling, the cost advantages that come with extensive production scale across product lines – lower costs. For example, P&G’s annual sales are 10 times higher than Clorox’s.

A third advantage is the reach, the cost benefits associated with selling many products (2,000+) through the same distribution channels, which also helps the company reduce costs. Additionally, P&G’s size and scope have given it the bargaining power to place its products at major retailers like Walmart and Target.

P&G’s advantages have allowed the company to allocate capital effectively, as evidenced by its rising economic value added (EVA), which estimates is 8 percent.

Wall Street has recognized the benefits of P&G. Over the past five years, its shares are up 41 percent, compared to a 37 percent gain for the S&P 500.

Disclosure: The author owns shares in P&G. How P&G Beats Inflation and Wins on Wall Street

Fry Electronics Team

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