Procter Gamble Co. s strong sales in its recent quarter weren t enough to overcome rising commodity and freight costs that are eroding profitability
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The maker of Downy fabric softener and facial tissues announced Wednesday that it expects $2.3 billion in after-tax expenditures this fiscal year from elevated commodity and freight costs - an increase from the prior expectation of $1.9 billion. Gross margin in the company fiscal first quarter fell short of expectations, outweighing organic sales and profit that beat estimates from Wall Street.
We had the full impact of rising commodity costs this quarter, chief financial officer Andre Schulten said in a conference call.
P&G shares fell as much as 2.5% in New York trading, the most since May last year. The stock was up 2.3% this year through Monday, trailing behind the roughly 20% gain of the S&P 500 index.
While P&G is benefiting from elevated demand for household essentials during the pandemic, snarled supply chains are darkening the horizon for all consumer products companies. P&G has performed well in recent quarters, but investors are skeptical the company will be able to emerge unscathed from what is expected to be a lengthy period of higher costs.
Organic sales, which strip out the impact of items like acquisitions and currency swings, grew 4% in the period ended Sept. 30. That topped analysts average estimate of about 2% growth. Total revenue and earnings per share have also beat expectations.
Rising costs of chemicals, pulp and diesel are among the obstacles faced by the Cincinnati-based company, while the transportation market is affected by a lack of drivers. Still, Schulten remains optimistic in its ability to overcome the macro environment, P&G said in an interview.
Procter Gamble s cost control and supply chain management in fiscal 1Q could allow it to take market share as smaller peers struggle to match its leadership. P&G's fiscal 2022, raised $2.1 billion in additional cost headwinds, have been partially absorbed by more than 200 million since July, and should be fully absorbed in pricing and savings.
We ll continue to work through that, he said. How well-prepared we are to weather this storm? Organic sales growth in the past quarter was buoyed by the health-care unit, which increased 7%. The fabric and home care division increased by this measure 5%. The gains were driven by a greater focus on health, hygiene and a clean home in general, Schulten said.
P&G s portfolio of cold and flu products, including Vicks, could get a boost during the upcoming flu season. With consumers backout in the world and inconsistent mask mandates, the situation bodes well for the business, Schulten said.
We don t expect to fully hit a normal incidence rate, but we anticipate a stronger season than that of the last year, he said.
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