Procter & Gamble reported lower-than-anticipated revenue on Friday, primarily due to decreased demand in China, which impacted its sales. The company’s organic sales in Greater China, its second-largest market, fell by 15% during the fiscal first quarter. The decline is attributed to falling home prices and rising unemployment rates in China, causing consumers to reduce their spending on products like shampoo and diapers.
Despite the current challenges, company executives remain confident about the long-term prospects in China, although they do not anticipate a recovery in demand for several more quarters. "The market continues to be weak and will be weak, we believe, for a number of quarters to come," stated CFO Andre Schulten during a press call.
The company’s forecast for China did not factor in the Chinese government’s recently announced economic stimulus plans. Following the earnings announcement, Procter & Gamble’s shares dropped approximately 1% during morning trading.
In terms of financial performance, Procter & Gamble reported the following compared to Wall Street expectations, based on an analyst survey by LSEG:
- Earnings per share: $1.93 adjusted versus $1.90 expected
- Revenue: $21.74 billion compared to an expected $21.91 billion
The company experienced a 1% drop in net sales, totaling $21.74 billion, while organic revenue, which excludes foreign exchange, acquisitions, and divestitures, increased by 2%, primarily due to higher pricing.
Procter & Gamble’s volume remained flat for the quarter, indicating a truer reflection of demand than sales figures. After years of price increases, many consumer companies, including Procter & Gamble, have encountered a drop in demand for their products. This past quarter marked the first time in over two years that their volume saw an increase.
In the United States, volume growth was observed in eight of Procter & Gamble’s ten categories, with no evidence of consumers switching to private-label products, according to Schulten.
The situation in Greater China, however, is different, as organic sales deteriorated compared to the previous quarter. Procter & Gamble identified volume declines in its hair care and oral care segments in China. Nonetheless, Greater China represents less than 10% of the company’s revenue.
Charles Rinehart, chief investment officer of Johnson Investment Counsel, a long-term shareholder in Procter & Gamble, commented that the issues related to Asia and execution are relatively minor compared to other challenges the company has faced in the past.
Procter & Gamble’s beauty segment, which includes brands like Pantene and Olay, experienced a 2% decline in volume this quarter. The skin care segment particularly struggled, with organic sales plunging over 20%. The sharp decline was attributed to reduced SK-II brand sales, which have not fully recovered since pandemic-related lockdowns. Additionally, anti-Japanese sentiment in China has posed recent challenges, with SK-II sales affected by a consumer boycott over concerns about Japan’s release of treated radioactive waste.
Both the healthcare and baby, feminine, and family care divisions of Procter & Gamble reported a 1% decrease in volume for the quarter. The baby care segment, which includes Pampers diapers, faced a more challenging quarter, with organic sales declining by mid-single digits. With global birth rates falling, Procter & Gamble has sought to boost sales by encouraging consumers to purchase more expensive products, such as Pampers Premium diapers, though this strategy does not always compensate for reduced volume.
The grooming division, comprising brands like Gillette and Venus, recorded a 4% volume growth, which the company attributed to product innovation.
In the fabric and home care sector, which includes Swiffer, Febreze, and Tide products, Procter & Gamble reported a 1% volume increase for the quarter.
For the fiscal first quarter, Procter & Gamble reported a net income attributable to the company of $3.96 billion, or $1.61 per share, compared to $4.52 billion, or $1.83 per share, in the previous year. Excluding restructuring charges and other items, the company earned $1.93 per share.
Procter & Gamble reaffirmed its fiscal 2025 forecast, anticipating core net earnings per share to range from $6.91 to $7.05, with revenue growth between 2% and 4%.
