Sales jumped 8% in latest quarter, fueled by demand for high-end household products
THE WALL STREET JOURNAL // JAN. 20, 2021
Despite a tough economic picture and high unemployment, the maker of Gillette razors and Pampers diapers said consumers are increasingly willing to pay more for products.
The dynamic is playing out across the consumer-products industry, as more-affluent consumers fare better in this recession than those with lower income and cleaning and hygiene take on a higher priority across all segments of society during the coronavirus pandemic.
“Consumers are driven to products where they can say, ‘I know that will deliver for me and my family,’ ” P&G operating chief Jon Moeller said.
Consumer spending on food and household products considered either premium or super premium rose more than spending on mainstream, value-oriented and private-label products, according to data from market-research firm IRI, which looked at online and grocery purchases for the 12-week period ended Oct. 4, compared with a year earlier. Premium soap, household cleaners and paper towels saw the most growth, according to the study.
A shift toward higher-end staples particularly benefits P&G, which generally has among the pricier items in the grocery store. That has hurt the company in past recessions.
Now, armed with extra cash following years of downsizing and solid sales, P&G has been churning out a range of high-end items including laundry-detergent pods designed for extra-large washing machines and a special line of Gillette shaving products.
The Cincinnati company’s organic sales increased 8% to $19.75 billion in the quarter ended Dec. 31. P&G raised its estimates for full-year organic sales growth to between 5% and 6%, up from the previous range of 4% to 5%.
The company also warned of a potential slowdown and greater uncertainty as dynamics around both the economy and pandemic could change dramatically. Continued lockdowns and another round of U.S. stimulus payments, for instance, would bode well for sales in many of P&G’s biggest categories. A return to normalcy or a deepening recession could slow growth.
“To assume linearity of any degree is difficult,” Mr. Moeller said. “If anything, the level of certainty is less today than it was” at the beginning of the pandemic.
P&G shares were down about 1.3% to $131.78 in Wednesday afternoon trading.
The strongest growth in the latest quarter was in P&G’s fabric and home-care unit, which posted a 12% sales gain. The unit’s brands include Tide, Mr. Clean, Dawn dish soap and Cascade dishwasher detergent. Sales in P&G’s grooming unit, which includes Gillette razors, rose 5%. Sales in P&G’s health-care unit, which includes dental care as well as over-the-counter medications, rose 9%.
Mr. Moeller said P&G has been able to spend more on new products and advertising while also boosting margins. The company underwent a yearslong restructuring in which it slashed jobs, cut billions of dollars in annual costs and overhauled its management structure.
Sales volumes rose along with price increases, offsetting pandemic-related sales losses. While many trends related to Covid-19 have bolstered sales for P&G and other household-staples makers, the pandemic has dealt some blows, from retail closures that are hurting sales of some beauty products to the fact that men are shaving less as they work from home, Mr. Moeller said.
The sales gains build on momentum that started before the pandemic, when P&G was notching sales gains higher than peers.
For its fiscal second quarter, P&G generated net income of $3.9 billion, or $1.47 a share, up from $1.41 a share a year earlier.
Analysts expected net income of $1.48 a share and sales of $19.98 billion, according to S&P Global Market Intelligence.