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Procter & Gamble holds share, shifts marketing as prices rise

The CPG bellwether sees more uncertainty ahead in 2023.

tide bottles on the shelf

Tide Laundry Detergent | Tide Laundry Detergent, Proctor and… | Flickr (www.flickr.com)

At Procter and Gamble, uncertainty is continuing into 2023.

The Cincinnati-based consumer goods company, which is one of the world’s largest, reported earnings for the quarter ended Dec. 31 on Thursday that indicated rising costs and resulting price increases were continuing to create a complex environment. Key results include:

  • Organic sales increased 5% year-over-year, while volumes – which are the number of products purchased – fell 6% during a quarter where P&G increased prices 10%. Volume declines were attributed to waning demand, as well as inventory reduction in Russia and China.
  • Diluted earnings per share, which are an indicator of profit, fell 4% annually.
  • P&G raised its full-year guidance to -1%- flat sales growth, while maintaining earnings guidance of flat-4%.

P&G’s earnings are a snapshot of the health of the maker of brands like Tide, Gillette and Pampers. Given the size of the company, its presence across multiple consumer categories, and the fact that P&G reports earnings early in the cycle, they are also closely watched as a bellwether for the economy, and health of the American consumer. Here are a look at three takeaways from executives’ earnings call with analysts:

Shifting media spend

With margins under pressure, brands must evaluate their marketing spend. While CFO Andre Schulten said that P&G's current media investment is “sufficient” in reach and frequency, he said the company increased marketing spend by $140 million on a quarterly basis.

P&G has also recognized opportunities to change how it executes media and advertising. In the baby care category, the business grew by 10% over the last year. This was aided by a 20% increase in reach and top-of-mind awareness by 26%, while saving 15% on media spend.

“They have completely shifted the way they run their media,” Schulten said of baby care. “...The equation here really allows for sufficiency at lower cost.”

With baby care, P&G is aiming to reach a relatively narrow demographic by its measure, as households with babies that are diapering age is about 3-4% of the population. But innovation has also been effective for categories that seek to go wider.

“The fabric care team in the U.S. has brought their media planning and buying in-house, developing proprietary algorithms to better place ads during the TV programming, for example, and that in and of itself has allowed $65 million of savings in one year, while increasing frequency,” Schulten said.

The global economic outlook: More uncertainty

When asked about the macroeconomic picture for 2023, CEO Jon Moeller sought to push back against any narrative that the shocks of the last three years have subsided. COVID vaccinations are more widespread and the supply chain is clearing up, but plenty of challenges remain. Here’s the response in full, which illustrates the environment before CPGs:

The world seems to want everything to be better as do I. That's really not reality though. There's an incredible amount of uncertainty that remains. None of us, I think, globally really understand what the recovery rate in China is going to be, as an example. And nobody really understands what the new policies and practices are going to mean in terms of consumer confidence in that context. You have the war in Eastern Europe. You have the highest inflation rates in 40 years. You have continued volatility in both the currency markets and the commodity markets. And importantly, that currency exposure for us is not a simple dollar exposure. There's a lot of cross rate exposures within that, which I realize makes it difficult to penetrate. But for example, the cross rate between the British pound and the euro has a significant impact on our bottom line.

So all that put together, while I'm extremely happy with the progress the organization is making, [and] I'm extremely confident that the strategy that we have is the right one that's going to continue to serve us well, it's just not an easy time to be taking up guidance to the top range of possibility.

Gaining US share, despite price increases

In the U.S., P&G is watching closely to see whether consumers opt for private label products following price increases. Schulten said the rates of this happening have been “relatively steady” in the last six months, and doesn’t see change coming.

Overall, the company has continued to hold its existing market share. Globally, 27 of 50 categories grew or held share in the quarter, and aggregate share was even with the previous year. In the U.S., share grew 0.5% from the prior year.

“If past behavior over the last six months, nine months is any indication, I think the consumer is relatively steady in the U.S., which gives us great confidence,” Schulten said.

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