Behind P&G’s spending hike
P&G’s quarterly spending hike in its fiscal fourth quarter ended June 30 comes in comparison to a year earlier, when it cut spending in its fiscal fourth quarter in the face of price hikes that were lagging cost inflation.
That spending restraint continued into the early part of the latest fiscal year, but the company began increasing year-over-year spending again in the fiscal third quarter ended in March.
In a media briefing on Friday, Chief Financial Officer Andre Schulten said that while P&G’s ad spending rose $453 million in the quarter, it was up only $123 million for the full fiscal year, which was roughly flat as a percent of sales.
Analysts and agency executives often see a big hike in fourth-quarter marketing spending as a strong indicator of health, given that it indicates plenty of budget left to spend because things went better than expected. But Schulten disputed that notion.
“Our decision to spend on advertising, on media, is not driven by what’s left in the budget,” Schulten said. “It’s really driven by return on investment that we can generate, and it’s heavily influenced by launch timing of new initiatives. It’s heavily influenced by retail events and promotions that we accompany with strong communication around the world.”
P&G’s unit volume, which like most competitors has turned negative in the face of price hikes over the past year, improved last quarter in the U.S. as most of those price hikes passed their anniversaries. Globally, P&G’s volume was down 1%, but in the U.S. volume rose 3% with a 6% increase in sales driven also by price and more premium product mix.
Into next year, P&G expects a more normal breakdown of volume, sales and price across its categories (including competitors), Schulten said on the media call, with organic sales up 4% on a 1% to 1.5% increase in volume and 1% to 1.5% increase in price.
P&G earned $1.37 per share, topping analyst expectations from Zack’s Investment Research of $1.32, and revenue of $20.6 billion exceeded expectations of under $20 billion. Its stock was up 3.2% in midday trading.