P&G’s strong margins take heat off annual profit forecast cut By Reuters

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© Reuters. Tide detergent, a brand owned by Procter & Gamble, is seen for sale in a store in Manhattan, New York City, U.S., June 29, 2022. REUTERS/Andrew Kelly/ File Photo

By Ananya Mariam Rajesh

(Reuters) -Procter & Gamble cut its annual profit forecast on Tuesday to reflect a writedown in the value of its Gillette business, but the company’s ability to maintain healthy margins during the second quarter pushed its shares up more than 5%.

Demand for the company’s daily-use products has held up in the United States and Europe, especially in P&G’s grooming and home care segments despite several rounds of price hikes to offset the impact of rising costs.

This along with easing production costs and still-high prices of its products in European markets helped P&G boost gross margin by 520 basis points in the second quarter.

In December, the company said it recorded a $1.3 billion charge related to a drop in the book value of its Gillette business at a time when volume growth in the segment slowed due to the hybrid post-pandemic work culture and a stronger dollar.

The writedown and waning benefits from price hikes mainly in the United States, that most of the consumer goods companies enjoyed for two years, could start to weigh on P&G’s profits.

The company now expects fiscal 2024 earnings to range from a fall of 1% to in line with fiscal 2023 earnings per share, compared with its prior forecast of a 6% to 9% growth.

“P&G’s second-quarter earnings are a tale of two regional stories as the macroeconomic and geopolitical landscape in Greater China, APAC and the Middle East is hard to predict and led to flat volumes despite North America and focus markets in Europe growing volumes,” Amanda O’Neill, lead analyst at S&P Global Ratings, said.

However, P&G’s overall volumes were flat, while average prices across product categories rose 4%.

The company’s net sales rose 3.2% to $21.44 billion in the second quarter, missing LSEG estimates of $21.48 billion, due to slowing demand for products including beauty brand SK-II in the second largest market China.

In China “we see a recovery since COVID that is not linear and is somewhat bumpy,” P&G CFO Andre Schulten said on a media call.

P&G’s second-quarter sales in the country were down 15% driven by a generally slower recovery in terms of consumer sentiment, Schulten added.

The company’s core profit came in at $1.84 per share, topping estimates of $1.70.

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