Double-digit price increases earnings at Procter & Gamble

The company said on Friday that another round of price increases for household products such as Gillette razors, dish soap and Swiffer dust helped boost Procter & Gamble’s fourth-quarter bottom line, in a sign that stubborn inflation may persist as companies defend their profit margins. .

Procter & Gamble, a leading consumer goods company, said its profits grew in the first three months of the year after it raised prices by 10 percent across its brands. The rise was the second consecutive quarter in which the company saw double-digit increases. The company’s profit margin expanded during the quarter, as the price increase more than offset the rise in what it paid for raw materials.

Revenue rose 4 percent in the fourth quarter from a year earlier, even as sales volume — number of rolls of Charmin toilet paper and boxes of Tide detergent — fell 3 percent, as consumers either switched to less expensive alternatives or bought less. In other words, Procter & Gamble made more profit even though it sold fewer products. The company’s sales volume has declined in the past four quarters.

“FMCG companies are a relatively small part of what contributes to the overall level of inflation,” said Sucharita Kodali, retail trend analyst at Forrester Research and Consulting. But, she added, they “contribute significantly to the perception of inflation.” Customers don’t buy cars or houses every day, but many notice price increases on frequent trips to the grocery store.

John Mueller, CEO of Procter & Gamble, he said in a statement The company delivered strong results “in what remains a very challenging cost and operational environment.”

The consumer products giant also raised its revenue forecast for the current fiscal year to an increase of 1 percent over the previous year; Its previous forecast ranged from flat to 1 percent. It said it plans to buy back up to $8 billion of its shares in the current fiscal year, which ends in June.

Procter & Gamble shares closed up more than 3 percent on Friday.

Americans have continued to spend in recent months even as companies pass on higher prices, but there are signs that consumers are starting to wane: US retail sales It fell by 1 percent in March from the previous month.

Inflation has slowed overall, rising 5 percent in the year through March, down from a peak of around 9 percent in the summer. The slowdown has been prolonged and uneven, in part because companies are finding they can maintain higher prices, particularly by promoting their offerings as premium products.

Procter & Gamble even has its own term for the high value of its products – “irresistible superiority” – which has been used several times on a conference call with analysts.

Andre Scholten, the company’s chief financial officer, said on the call that consumers are becoming more careful with spending. “It just means we need to double down on our vision of what it’s like to excel at some of our low-value levels,” he added. This may include communicating the value and quality of products to consumers.

Other consumer product manufacturers have achieved similar results after increasing prices. In February, PepsiCo She said she would not raise her prices After multiple rounds of increases, the company posted better-than-expected results in the fourth quarter. And Unilever This year it said it would continue to raise prices on its products, but ease the increases in the second half of the year.

High prices can frustrate consumers, said Ms. Kodaly, an analyst with Forrester. Brand loyalists, or “inflexible customers,” will likely continue to buy branded products at higher prices, but other customers have already changed their shopping habits – as evidenced by P&G’s declining sales volume.

A customer who has been put out of business by the high price of disposable Pampers diapers, for example, might start using cloth alternatives instead. It will be difficult for Procter & Gamble to win that customer back.

Higher rates may be good for corporate profits, but they have complicated the Fed’s efforts to tame inflation by cooling the economy through a series of interest rate increases that began last year. Late last month, the Fed raised its benchmark interest rate to a range of 4.75 to 5 percent, up from near zero just over a year ago.

In Europe, policymakers have warned that raising corporate prices above what is necessary to absorb higher costs could lead to an increase in inflation. Policymakers have long been concerned about a wage-price spiral, in which higher wages lead companies to raise prices to compensate for salary increases.

Now, the so-called profit and price spiral may also be a risk. An executive board member of the European Central Bank warned last month that half of the domestic price pressures in the eurozone in the fourth quarter of last year came from the company’s earnings.

Procter & Gamble executives admitted during the call with analysts that there were still challenges ahead, such as higher operating costs and higher wages.

“There are many headwinds that we work against and will continue to work against as we go forward,” Mr. Mueller said.