Procter & Gamble raises annual profit forecasts thanks to strong consumer demand in the United States, which eases costs

Written by Ananya Maryam Rajesh and Jessica DiNapoli

(Reuters) – Procter & Gamble Co raised its annual profit forecast due to lower commodity costs and as consumers, especially in the United States and Europe, continue to buy expensive Tide detergent and dish soap.

Although P&G's third-quarter net sales fell short of analysts' expectations, the company was able to boost its bottom line, based on benefits from lower raw material prices from the peaks seen during the pandemic.

Trading volumes grew by about 3% in its largest market, the United States, Andre Scholten, chief financial officer, said in a media call. He said consumers were not switching from P&G products to unbranded products.

“The consumer is not backing down,” Schulten added.

However, cost-conscious consumers are turning to value-based products, said Don Nesbitt, senior portfolio manager at P&G investor ZCM.

P&G's strong sales momentum in the United States and Europe was overshadowed by lower sales of its high-end SK-II skincare line, a top seller in China, due to weak consumer spending, coupled with customers shunning it due to environmental concerns.

Scholten said the company has “hit the bottom of the trend” in China with SK-II, which sells for about $100 a bottle. Sales of the product in the third quarter fell by about 30% in Greater China.

P&G now expects to realize about $900 million after-tax benefit from favorable commodity costs for fiscal 2024, which ends in June, compared with its previous forecast of $800 million.

The consumer goods giant expects basic earnings per share to rise between 10% and 11% this fiscal year, which is more than its previous forecast of growth of between 8% and 9%.

Excluding items, P&G had earnings of $1.52 per share, beating estimates of $1.41 per share.

Third-quarter net sales rose to $20.20 billion from $20.07 billion a year ago, but fell short of analysts' average forecast of $20.41 billion, according to LSEG data.

The company's shares fell about 2% in early trading.

“Sales were wrong, but better forecasts were met with skepticism,” said Brian Jacobsen, chief economist at Annex Wealth Management. “They may be placing high hopes on the ability to increase volumes in an environment where it is difficult to increase prices.” , which owns shares in P&G.

He added: “Relying on declining headwinds seems like a victory of hope over reality.”

On the post-earnings call, Scholten also said that volume trends in some countries, such as Egypt, Saudi Arabia, Turkey, Indonesia and Malaysia, have remained weak since the beginning of rising tensions in the Middle East.

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The focus is now also shifting to the company's ability to increase overall volumes as the benefits from higher prices to sales growth diminish.

Procter & Gamble reported flat overall volumes in the third quarter, while average prices across its product categories rose 3%.

Scholten added that P&G is not increasing prices further and that volumes are increasing sequentially, “which is exactly what we want to see.”

(Reporting by Ananya Maryam Rajesh in Bengaluru; Editing by Shinjini Ganguly, Louise Heavens and Jonathan Oatis)