Consumer demand for cleaning and personal care products remained stronger than projected despite rising costs, prompting Procter & Gamble to raise its full-year sales forecast on Wednesday, sending its shares up more than 2 per cent.

Analysts estimate that P&G’s sales growth is at its highest level in at least 15 years, but there are concerns that consumers will begin to substitute branded items for less expensive own-label items as supply chain constraints and rising commodity prices drive inflation higher, putting pressure on household budgets.

Consumers are migrating to better-value premium items such as single-dose detergents or higher-priced diapers, according to P&G officials, who added that they will focus marketing efforts on such offerings.

“We certainly have our eyes wide open and (will) watch for any change in terms of consumer behavior,” said Chief Financial Officer Andre Schulten on a call with analysts.

Executives also announced further price hikes in feminine, home, and oral care in the United States, effective this summer, despite expectations that consumer demand will decline as the increased prices trickle down to store shelves.

Consumers stocked up on detergents and surface cleaning products like Tide and Mr. Clean during the coronavirus’s Omicron wave early in the year, driving up sales in P&G’s fabric and home care unit, the company’s largest segment, by 7 per cent in the third quarter.

The health-care sector, which includes brands such as Oral-B and Pepto-Bismol, saw a 13 per cent increase in sales.

However, the consumer goods behemoth warned that higher costs could eat into its annual core earnings per share, which it now expects to grow at the low end of the 3 per cent to 6 per cent range predicted in 2016.

COVID-19 lockdowns hurt P&G’s China business, forcing the company to close operations and keep shoppers at home, which executives said had a “substantial impact” on consumer demand.

A stronger currency, rising commodities and freight expenses, and a higher dollar are likely to reduce full-year earnings by $3.2 billion, compared to a previous prediction of $2.8 billion.

According to Schulten, P&G lost one penny per share in the third quarter as a result of the Russia-Ukraine conflict, which will climb to four cents in the fourth quarter.

All new capital investments in Russia will be halted, and the company’s portfolio would be “substantially reduced” to focus on basic hygiene, health, and personal care products.

Prior to the war, P&G’s operations in Russia and Ukraine accounted for 1.5 per cent to 2 per cent of the company’s net sales and profit, according to Schulten.

According to Refinitiv statistics, net sales increased 7 per cent to $19.38 billion in the quarter ended March 31, compared to an average analyst forecast of $18.73 billion.

Despite price hikes across most of P&G’s product line, total sales volumes increased by 3 per cent.

 Sales are expected to expand 4 per cent to 5 per cent in fiscal 2022, compared to a 3 per cent to 4 per cent gain in fiscal 2021.

(Adapted from Nasdaq.com)