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Still looking for sales growth, Procter & Gamble Co. hikes prices

Pampers, Charmin, Bounty and Puffs to cost more
Posted at 8:43 AM, Jul 31, 2018
and last updated 2018-07-31 18:22:21-04

CINCINNATI - Procter & Gamble Co. announced price increases on four of its biggest brands Tuesday, even as it announced weaker than expected sales growth for its final quarter of its 2018 fiscal year.

P&G said it’s in the process of raising prices on Pampers diapers in the U.S. by an average of 4 percent, while Bounty, Charmin and Puffs products will see a 5 percent increase in average list price.

Chief Financial Officer Jon Moeller said additional price hikes could follow in other product categories, driven by rising commodity costs and a strong dollar, which diminishes the value to P&G of sales made overseas.

“We’re working very hard as we do this to improve value to consumers by upgrading the products and offering them newer and stronger benefits that justify that price increase,” he said. “So, hopefully she’ll feel even better about her purchase than she has historically.”

Moeller said the new pricing strategy carries some risk that it will lose market share to rivals.

“Pricing does introduce uncertainty and will impact demand and volume,” he said. “The degree to which that occurs will depend on what other companies do in terms of their own pricing.”

The new pricing will change what retailers pay for P&G products, starting with diapers this month, Bounty and Charmin in October and Puffs in February, Moeller told analysts.

P&G spokesman Damon Jones said the company is implementing 7-8 percent price reductions for Luvs diapers, while Pampers is focusing its biggest price increases on premium products like the extra-absorbent Cruisers and the “blankie soft” Swaddlers line for newborns.

P&G’s share price declined more than 2 percent in pre-market trades, but opened 19 cents higher than yesterday's close. Following a conference call in which the company identified several categories where it is growing revenue by double digits, P&G's stock price stayed in positive, up nearly 1 percent to $80.95 in the first half hour of trades.

There was a lot for investors to digest. P&G earned a $1.9 billion profit on revenue of $16.5 billion. Its revenue was about $40 million less than analysts were expecting, while earnings per share of 94 cents was 4 cents better than expected.

Organic sales, which exclude unusual events like currency fluctuations, acquisitions and divestitures, increased 1 percent for the quarter. Analysts were forecasting more than 2 percent growth in that key metric.

P&G also revealed financial expectations for the coming year that were very similar to last year’s goals, including organic sales growth of 2 to 3 percent and growth in earnings per share of up to 8 percent.

During a conference call with Wall Street analysts, CEO David Taylor offered reassurance that P&G's price hikes won't lead to lost market share because its rivals are paying more for pulp, energy and other commodities.

"Bounty and Charmin are pricing to recover the cost increases we and the rest of the industry participants are experiencing," he said. "Many of the categories where we're taking pricing on our premium brands, there is pressure for all participants ... to deal with the rising input costs."

On the growth front, Taylor offered some evidence that its investments in product innovations are leading to faster growth in important segments of P&G's business. For example:

  • Online sales grew 30 percent to nearly $4.5 billion in 2018, now representing about 7 percent of company revenue.
  • P&G's naturals segment, which including Tide Purclean, Pampers Pure Protection and Gain Botanicals, quadrupled its revenue in 2018 and is projected to double in the next 12 months.
  • P&G's China business grew by 10 percent, while India and Turkey grew by "strong double digits."

"Consumers are voting for us more and more often," Taylor said. "Volume growth is strong. We're seeing, on many of the brands, household penetration start to move. And then you see China, India (growing). The outlook is strong."