Procter & Gamble hikes ad spending 14% but organic growth slows

Procter & Gamble Co. boosted its profit outlook as the maker of Pampers diapers and Dawn dish soap couples steady price increases with easing commodity costs and productivity gains. P&G hiked ad spending 14% in its just-concluded fiscal third quarter, increasing spending as a share of sales by 1.8 percentage points or more than $360 million, said Chief Financial Officer Andre Schulten in a media briefing. Check out the latest Ad Age events and award programs The company now sees earnings, excluding some items, in a range of $6.49 to $6.55 a share in the current fiscal year — an increase of 12 cents from the previous forecast and above analysts’ average estimate. Gross margin, a gauge of profitability, also came in above estimates for the quarter ended March 31. The company said costs have fallen in part due to curtailed overtime at production lines and shifts to lower-cost ingredients. While earnings in the quarter beat expectations, sales fell short. Organic sales, which strip out the impact of acquisitions, divestitures and foreign-exchange impacts, increased slightly less than analysts had projected. Shipment volumes were little changed from a year earlier. Asked if P&G would hike spending or roll back prices given slower organic sales growth compared to prior quarters combined with strong margin growth, Schulten said consumer takeaway of P&G products remains very strong, outside of specific issues, such as that with SK-II in China. “That is a reflection of the strong marketing investment this quarter and in previous quarters,” he said. “Very strong gross margin progress the team has made in the quarter will enable us to stay fully invested for the balance of the year and going into next year, and that’s the plan.” The report shows that shoppers are still spending more for essential goods even as persistently high inflation curbs purchasing power. P&G is on track to boost its prices for a sixth consecutive year, and in the latest quarter they came in 3% higher than a year earlier. While higher prices are underpinning better profitability, it has come at the cost of lower volume growth. In an interview, Schulten said consumer behavior is “really stable.” He added that “the supply situation on the commodity side has eased after Covid.” In North America, where P&G gets half of its revenue, third-quarter volume rose 3%, slightly below last quarter’s 4%. Overall, volume was flat in the period. Check out the latest Ad Age events and award programs P&G posted higher-than-expected sales growth in its grooming division, which includes Gillette razors, citing higher prices in Europe and Latin America. Schulten said that business has been bolstered by total body shaving and intimate hair removal products, which P&G has targeted with shaving gels and Braun electric shavers for both men and women. P&G’s fabric-care business, which sells Tide detergent, also outperformed last quarter. Its health care and baby products divisions, however, came under pressure, with volumes dropping in both categories, the maker of Pampers said. P&G has struggled to expand sales in China, where it sells SK-II beauty products, amid weak consumer confidence. “The consumer is still a little bit shaken,” Schulten said of China. “I think the market is coming back slowly. Will it be bumpy in the future? Yes, it won’t be a straight line.” P&G shares have advanced 7.3% this year through Thursday’s close, outpacing the 5.1% gain of the S&P 500 Index. —Bloomberg News with Ad Age reporter Jack Neff

Procter & Gamble hikes ad spending 14% but organic growth slows

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