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Procter & Gamble credits 'pantry loading' for strong Q3 sales growth

P&G aims to produce 10M COVID-19 masks monthly
Something new at Procter & Gamble: Sales growth
Posted at 10:36 AM, Apr 17, 2020
and last updated 2020-04-17 10:36:26-04

CINCINNATI — Anyone who took heat for hoarding toilet paper in March can now claim some credit for helping Procter & Gamble Co. achieve its best sales growth in decades.

The Cincinnati-based maker of Charmin toilet paper and Tide detergent said a spike in “pantry loading” drove a 5 percent increase in net sales to $17.2 billion in its third quarter, which ended March 31. P&G also posted a 10 percent increase to $1.17 in core earnings per share, which excludes unusual one-time events like mergers and restructuring charges.

P&G shares were up nearly one percent to $122.55 in early trading on Friday.

“The strong results we delivered this quarter are a direct reflection of the integral role our products play in meeting the daily health, hygiene and cleaning needs of consumers around the world,” CEO David Taylor said in a press release. “Our organization has been doing a terrific job against our near-term priorities – protecting the health and safety of each other, maximizing availability of P&G products to meet heightened consumer need and helping society meet and overcome the challenges of this crisis.”

P&G also revealed that it’s ramping up production of masks that can be used by its own employees and donated to health-care organizations around the world. The company is 40 percent of the way to its goal of producing 10 million masks per month with factories in the U.S. and China now up and running. Factories in Europe, Latin America, Africa and the Middle East are expected to be online in the coming weeks.

P&G has also boosted production of hand sanitizer in five plants around the world, which is being donated to relief organizations. And it launched a new line of home-sanitizing products called Microban 24 that “kills 99.9 percent of bacteria on contact,” according to its marketing materials.

In a conference call with reporters, Chief Financial Officer Jon Moeller said a 10 percent increase in U.S. revenue helped P&G offset an 8 percent decline in China in the third quarter. Purchases of P&G products in U.S. stores increased 22 percent, causing inventory shortages that will enable robust sales of toilet paper and cleaning products for months to come.

Moeller said P&G will get a longer-term boost from an increased focus on cleanliness, caused by the coronavirus pandemic.

“Laundry, for example, more loads per week. More garments being washed after just one use to ensure that they’re clean and hygienic,” he said. “With more in-home meal preparation there’s much higher in-home cleaning needs. So, our surface cleansing business and our home care business have increased significantly. We don’t expect that to dissipate.”

Consumers are buying more of P&G’s disposable cleaning products to replace “that wet and grungy sponge, that suspect mop,” Moeller added. Even P&G’s shaving products are seeing a boost from coronavirus, thanks to guidance from the Centers for Disease Control that beards reduce the effectiveness of N-95 respirators and surgical masks.

But the increased opportunity from COVID-19 also brings increased risk. P&G decreased its guidance for sales growth for the fiscal year that ends in June, now telling investors to expect growth of 3 to 4 percent.

“We may see months of sporadic production suspension due to local quarantines or raw material supply,” Moeller said. “Customers may close stores. There will continue to be extreme foreign-exchange and commodity-cost volatility. Added operational complexity will result in higher costs. Unemployment will impact outcomes, perhaps severely.”

P&G has suffered in past recessions, as consumers lost their appetite for brands that claim superior quality as justification for their premium price. But P&G has boosted its supply of lower-price offerings while gaining market share with new product innovations that won over consumers as the economy improved. The COVID-19 recovery will be a test of that strategy.

But Moeller told Wall Street analysts that he saw "no reason for underlying trends to change" because product quality will be more important than ever as consumers globally search for cleaning supplies that protect their families from infection.