While P&G saw a slight increase in net sales compared to 2021, roughly $274 million, the company overall had a 4% decrease in net earnings.
Chief Financial Officer Andre Schulten said on the earnings call that several factors are contributing to that result, including:
- High commodity and transportation costs
- Inflation in the upstream supply chain
- Inflation in P&G’s operation costs
- Accelerating headwinds from foreign exchange
- Geopolitical issues
- COVID disruptions impacting consumer confidence
- Historically high inflation impacting consumer budgets
- Lower shipments in Russia
- Greater China sales down due to COVID-19 lockdowns and lower consumer confidence
Despite the drop, Schulten remained positive about the results and said the company saw growth in all 10 of its consumer categories, including 10% in skin and personal care, 9% in hair care, 8% in grooming, 8% in oral care, 6% in feminine care and 8% in oral care.
“We fully expect more volatility in costs, currencies and consumer dynamics as we move through the fiscal year,” Schulten said during the meaning. “However, we think the strategies we've chosen, the investments we've made and the focus on executional excellence has positioned us well to manage through this volatility over time.”
He added that the turbulent economic period is an opportunity for growth for P&G, not a reason to cut investment in the business.
Volatility
Jennifer Palmer, CEO of eCapital Assets Based Lending, told CosmeticsDesign in previous coverage that the beauty industry is looking at a tough five years as the world economy faces many of the challenges P&G discussed in its earnings call. Palmer said companies across the segment are seeing significant changes in consumer behavior and economic stability from the last few years and that companies are focusing on the bottom line more than top-line growth.
"This industry is obviously not immune to all of the challenges that so many companies are facing," Palmer said. "The industry is facing inflation, higher cost to produce and ship goods, labor shortages, supply chain issues and the ongoing pandemic, which all affects the world of financing."
Outside of economic volatility, Schulten said categories that were affected by the pandemic like home and personal care have seen a contraction, but not a major shift from what P&G expected. As COVID-19 stressors fade from the market, he added that volatility in some categories is disappearing.
Geopolitical impacts
Schulten noted that while P&G saw 7% organic growth there was also a three-point drop in volume, which he attributes primarily to lower shipments in Russia.
In light of the Russian invasion of Ukraine, over 1,000 companies worldwide have voluntarily "curtailed" their activities in Russia, including P&G, According to Yale University School of Management. According to a March 2022 letter from Schulten P&G chose not to fully pull products out of the Russian market, but ended new investments and stopped running media, advertisement and promotional activity in the country.
Additionally, he noted that the company scaled down its portfolio in Russia to focus on health, hygiene and personal care, all products which affect the day-to-day quality of life for Russian citizens.
During the earnings call it was noted that, while much of the world is seeing decreased supply chain and sales impacts from COVID-19, continued lockdowns in China are still making a significant impact.
"Volumes in China are down 5% to 6% on the quarter," Schulten said. "We had certainly hoped for that to ease, but we still see significant negative impact on consumer mobility from the continued strength COVID policies."
Across planned remarks and several questions from earnings call attendees, Schulten repeatedly said this downturn in volume does not change P&G's belief that China will be a long-term source of growth for the multinational, and that the company plans to continue its investment in the market.
Chief Executive Officer Jon Moeller said considering mitigating factors, the company performed well during quarter one.
"Seven percent organic sales growth against the context of Russia, Ukraine, what's happened in China where the market is down mid-singles, that is truly a fantastic work; communicating the value of our offerings, improving the value of our offerings as we take necessary pricing, maintaining topline momentum of the business, great work," Moeller said.