Despite Prices Cuts, Procter & Gamble Performance Disappoint The Market

Lower pricing and slack demand at the Pampers diapers and Gillette shaving products making units of Procter & Gamble Co drove its fourth quarter performance being hit amidst lower sale. The result disappointed Wal Street analysts who expected higher returns.

The changing and evolving consumer habits have put large global consumer goods manufacturing companies in a tight spot who have struggled to strike appreciable sale growth. There is a significant number of customers of consumer goods who are choosing fresher brands or are altering the manner in which they groom themselves. Increasing transportation and commodities costs – specifically the rise in costs for pulp that is used in diapers and tissue products, is plaguing companies like P&G and its rivals.

The company reported an increase of 2.6 per cent in net sales at $16.50 billion while analysts and markets have been expecting sales at $16.54 billion.

Compared to the first half of fiscal 2019, in the second half the fiscal could see stronger organic sales and core earnings if there are cost cuts in the company as well as higher prices, said P&G, whose board has activist investor Nelson Peltz.

There was a drop of 0.5 per cent at $79.82. in the shares of the company which is the second largest consumer goods firm after Nestle SA.

The company would be introducing an average of 4 per cent increase in the price of Pampers prices in North America while notification of an average 5 per cent price hike for Bounty, Charmin and Puffs tissue products is being sent by the company to the retailers.

The hike in prices may not augur well with retailers who have been engaged in reduction of prices of products displayed in order to fight the price range of Amazon.com Inc.

“While P&G announced 4-5 percent price increases for key U.S. businesses, questions remain whether pricing will stick in the current environment,” Wells Fargo analyst Bonnie Herzog wrote in a note.

During the quarter, P&G had recued prices by an average of 3 per cent for its products in its grooming business over the last quarter with the aim of gaining back market share that had been taken away by upstarts such as Dollar Shave Club. While volumes in the unit dropped 1 percent, sales fell 1 percent to $1.65 billion.

Consumers shaving less frequently was cited as the reason of lower sale in the unit by P&G Chief Financial Officer Jon Moeller but added that the company has been able to get back some market share because of its price cut strategy.

The Baby, Feminine & Family Care business of P&G saw a fall in revenue of 2 per cent. These segments account for the second largest portion of the company’s overall revenues. The segments reported slow demand in the Middle East, Africa and Latin America, the company said.

(Adapted from finance.yahoo.com)

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