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Earnings Results: Procter & Gamble’s earnings boosted by higher prices for Pampers diapers and Bounty kitchen paper

Procter & Gamble Co.'s stock rose almost 4% Friday after the consumer goods giant beat estimates for the third quarter and raised its sales guidance. Read More...

Procter & Gamble Co.’s stock rose 3.5% Friday after the consumer goods giant’s fiscal third-quarter results topped Wall Street’s estimates, boosted by price hikes for household items like Tide detergent, Bounty kitchen paper and Pampers diapers.

The company PG, +3.60% said it raised prices by about 10% across its brands, which are grouped into beauty, grooming, healthcare, fabric & home care, and baby, feminine and family care.

Chief Executive Jon Moeller acknowledged a continued “difficult cost and operating environment” in the earnings release.

But on a call with analysts, he said overall the U.S. consumer is in good shape and is willing to buy P&G’s higher-priced household name products, instead of trading down to cheaper private-label brands.

“The consumer is still choosing P&G brands. We are growing volume share in a market that is still down on volume,” he said, according to a FactSet transcript.

See: An issue with your tissue? ‘Forever chemicals’ are in toilet paper, too.

Private-label share has remained stable at 16%, and has shown no movement over the last nine months, suggesting there is no material trade-down, he added.

Analysts cheered the numbers and reiterated buy ratings on the stock. Of the 19 analysts tracked by FactSet, 13 have buy ratings, while five have hold ratings and just one is at underweight.

“P&G is clearly on its front foot,” wrote Jefferies analysts. ‘We expect a positive stock reaction and the stock remains a core holding. The print is consistent with our positive sector view heading into earnings season.”

Truist analysts were also bullish.

“All in, we continue to believe Procter & Gamble will maintain its leading market share as consumers’ willingness to pay for premium offerings remains despite recession concerns,” they wrote, reiterating a buy rating on the stock.

Last quarter: P&G raised prices 10%, and the volume of products sold fell more than expected

On the analyst call, Moller said the consumer in Europe is showing signs of price sensitivity, and the company is facing greater competition there from lower-cost labels, said Moller.

“We see the price differential between private label and branded competitors increasing as private label is delaying price increases,” he said. “The consumer continues to be under pressure there, so that’s going to be a continued headwind I think from the volume side.”

In China, the recovery from a long COVID lockdown has been somewhat choppy. China is the company’s second-biggest market after the U.S.

China “is not going to be a vertical restart and there will be a number of twists and turns,” said Moller.

The company has not seen any return of Chinese consumers to travel retail, said Chief Financial Officer Andre Schulten.

“That is a significant negative for us in the SK-II business specifically so that hopefully we see a more positive trend there in the near future.
he said, referring to the company’s Japanese facial treatment and skin care products, that are popular in Asia.

The company posted net income of $3.40 billion, or $1.37 a share, for the quarter through March 31, up from $3.36 billion, or $1.33 a share, in the same period last year. Analysts surveyed by FactSet were looking for earnings of $1.32 a share.

The company’s sales rose 4% to $20.07 billion, above the FactSet consensus of $19.28 billion. Volumes fell 3%, however, suggesting some customer reservation on pricing.

By category, feminine care product sales rose in the low teens, personal healthcare, home care and hair care grew by double-digits. Grooming, oral care and fabric care grew in the high single-digits. Baby care was up mid singles and family care and skin and personal care grew in the low single digits.

Growth was broad cases across geographies, said Schulten.

Core operating margin increased 40 basis points as 150 basis points of gross margin expansion were partially offset by investments in selling, general and administrative costs and inflation impacts.

Procter & Gamble raised its full-year sales outlook to growth of about 1% from its prior forecast of down 1%- to flat.

The stock has gained 3.2% in the year to date, while the S&P 500 SPX, -0.08% has gained 8%.

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