Procter & Gamble Reports Sales Drop

By Ananya Mariam Rajesh and Jessica DiNapoli

(Reuters) – Tide maker Procter & Gamble (NYSE:PG) has reported a surprising drop in quarterly sales for the second consecutive time. Consumers in the United States, its largest market, are buying fewer name-brand products, while Chinese shoppers are also avoiding them.

P&G's CFO, Andre Schulten, reassured investors on Friday, stating there were "no indications that the consumer is not with us." Despite this, shares of the Dawn dish soap maker closed flat.

Analysts suggest that economic uncertainty in the U.S. – which constitutes nearly half of P&G's total sales – has led some lower-income consumers to seek out cheaper private-label brands and discounted options.

Growth for P&G's North American organic sales in the first quarter slowed to 4% from 7% compared to the previous year, as their reliance on price hikes showed signs of wear, despite volume increases.

The company's baby, feminine, and family care segment, which includes the well-known Pampers brand, experienced a 2% decline in sales during the quarter. In contrast, its beauty segment, including the struggling Japanese skincare line SK-II, saw a 5% drop.

"Consumers aren't feeling good after the recent inflation; we need an improvement in sentiment for better performance from a company like this," said Don Nesbitt, senior portfolio manager at F/m Investments, which holds a stake in P&G.

P&G decided to maintain its forecast for the upcoming year, although some analysts were surprised that the company's pricing strategies didn't lead to the expected sales growth. P&G’s results appear to align with expectations, indicating little change in consumer behavior.

Similarly, packaged food maker Nestle indicated a continuation of weak demand, particularly in regions like Latin America, resulting in a revised annual sales forecast.

Challenges in China

A prolonged property crisis and rising youth unemployment have led to a dismal demand environment in China, adversely impacting P&G’s sales. The company reported a 15% fall in organic sales in China, primarily due to anti-Japanese sentiments affecting its premium SK-II brand.

China represents a large portion of P&G's international revenue, contributing over half of the company's total sales. CFO Schulten noted that consumption in China remains soft and will likely continue for several quarters.

To counteract this, P&G plans to launch new products in the second half of the year, aiming to stimulate growth in its core business. Schulten mentioned efforts to rejuvenate parts of its Olay beauty line and noted success with Melts, the brand's dissolving face wash cubes. Additionally, P&G is scaling up production of Tide Evo, an eco-friendly tile-form detergent.

Relaunching Luvs diapers might also revive the baby care segment, as pointed out by Michael Ashley Schulman, chief investment officer at Running Point Capital.

Brian Jacobsen, chief economist at Annex Wealth Management, remarked that the prior stronger consumer trend towards U.S. growth has become trickier due to a competitive landscape and consumer resistance to price increases.

Fluctuations in the business remain closely tied to challenges in China and ongoing geopolitical conflicts in the Middle East. Some countries have entered boycotts against P&G products, influenced by perceived affiliations of U.S. brands with Israel.

P&G reported a 0.6% drop in net sales for the first quarter, totaling $21.74 billion, which fell short of analysts' estimates of a 0.2% rise to $21.91 billion. However, the company maintained its annual organic sales forecast of 3% to 5% growth and core earnings-per-share expectations of $6.91 to $7.05.

Despite the ongoing price hikes, the company reported a 1% rise in average prices across its product categories and a 1% increase in overall organic volumes during the quarter. This led to an adjusted profit-per-share of $1.93, exceeding the average analyst estimate of $1.90, according to data from LSEG.