Procter & Gamble hits sales target as marketing spending accelerates
Procter & Gamble Co. offered some rays of optimism with results for its fiscal third quarter announced Friday. Its organic sales rose 6 percent in line with analyst expectations on the company’s biggest hike in marketing spending for any quarter this fiscal year, which ends June 30.
P&G hiked marketing spending as a share of sales in the quarter by 1.9 percentage points, or more than $320 million. But it also continued reductions in overhead and marketing costs—including agency and production fees—to the tune of 0.7 percentage points, or around $120 million.
That still means P&G’s highest net increase in marketing spending (less overhead and fee cuts) so far this fiscal year, up around $240 million compared to the year-ago quarter (also factoring in sales growth). In comparison, for the prior quarter ended Dec. 31, P&G had about a $100 million increase in marketing spending net of overhead, agency and production fee cuts.
There’s no sign P&G plans to pull back spending in the current quarter either. The company is sticking to full-year guidance on organic sales and earnings growth, and Co-Chairman Chief Financial Officer Jon Moeller said on a conference call with investors that he sees no reason to curtail ad spending.
P&G is now reviewing product-launch plans in each category to determine if changes are needed “either of necessity or design to maximize the impact,” Moeller said. “In terms of how products are brought to market, I don’t see the need for significant changes. For example, there’s more media consumption occurring right now than probably there has been in three or four years. So changing that model doesn’t really make a lot of sense. I don’t just mean TV, but digital consumption as well.”
While P&G’s China sales fell 8 percent last quarter due to coronavirus lockdowns there, sales soared 10 percent in the U.S., more than making up for that, due to pantry loading as people prepared to stay home. Sales rose an even faster 14 percent in Canada, 6 percent in Western Europe and 11 percent in Latin America for the same reason.
The marketer of Charmin, Bounty, Tide and Olay has had trouble keeping up with demand in the U.S. as sales to consumers rose 22 percent last quarter even as sales to retailers only rose 10 percent with factories running at full tilt. Moeller acknowledged that consumer sales will slow this quarter in some categories as consumers work through what they loaded into their pantries, but at the same time P&G will be working to restock retailer shelves.
In a media call, Moeller acknowledged the effect on Gillette of what people see in their virtual conference rooms: “Shave frequency is not as high as it was pre-crisis.” But he said use of other things P&G makes are benefiting beyond the short-term panic buying.
“More in-home meal prep has increased in-home cleaning needs,” Moeller said, bolstering brands that include Dawn, Cascade, Bounty, Mr. Clean, Swiffer and more. “There’s also a shift to disposable solutions away from that wet and grungy sponge, that suspect mop.”
Even in laundry, Moeller said, people are doing more loads per week and “more garments are being washed after just one use to ensure that they’re hygienic.”
On the investor call, Moeller said P&G is able to track that in-home detergent use by collecting data from internet-connected washing machines in homes, and usage in other categories from other home panels.
Beauty, on the other hand, has suffered. P&G’s $2 billion-a-year high-end SK-II brand, sold mainly in East Asia, saw sales drop 20 percent last quarter, pulling the overall beauty business down to only 1 percent growth globally. But Moeller said sales in China are starting to rebound as stores and other places of business reopen.