Procter & Gamble announced on Friday that its revenue for the recent fiscal quarter was lower than anticipated, primarily due to reduced demand in China affecting sales. The company’s organic sales in Greater China, its second-largest market, experienced a 15% decline in the fiscal first quarter. Contributing factors include falling home prices and rising unemployment rates, which led Chinese consumers to cut back on spending for essentials such as shampoo and diapers.
While company executives remain optimistic about long-term prospects in China, they do not expect demand to recover for several more quarters. CFO Andre Schulten noted in a press call, "The market continues to be weak and will be weak, we believe, for a number of quarters to come."
P&G’s expectations for China did not factor in the Chinese government’s recent economic stimulus plans. As a result, the company’s shares dropped by approximately 1% during morning trading.
The following are P&G’s reported figures versus Wall Street’s expectations, based on a survey of analysts by LSEG:
- Earnings per share: $1.93 adjusted vs. $1.90 expected
- Revenue: $21.74 billion vs. $21.91 billion expected
The company reported a 1% decrease in net sales to $21.74 billion. However, organic revenue, excluding foreign exchange, acquisitions, and divestitures, grew by 2% due to higher prices.
Volume remained flat for the quarter, suggesting a stable demand when excluding price changes. After several years of price increases, P&G, like many consumer companies, has seen a decrease in demand for its products. The previous quarter marked the first volume increase in over two years.
In the United States, P&G experienced volume growth in eight out of its ten categories, with no noticeable shift to private-label products, according to Schulten. Conversely, in Greater China, organic sales continued to decline compared to the previous quarter, with notable volume reductions in hair care and oral care. Despite this, Greater China represents less than 10% of P&G’s total revenue.
Charles Rinehart, Chief Investment Officer of Johnson Investment Counsel, commented that the challenges in Asia are relatively minor compared to other difficulties the company has faced historically.
P&G’s beauty segment, which includes brands such as Pantene and Olay, saw a 2% volume decrease during the quarter, particularly in skin care, where organic sales fell over 20%. This decline was attributed to lower volume and decreased sales of its premium SK-II brand, which has struggled since the onset of pandemic lockdowns. Recently, the brand faced challenges in China due to anti-Japanese sentiment, as Chinese consumers boycotted it fearing contamination following Japan’s release of treated radioactive waste.
The health care and baby, feminine, and family care divisions each reported a 1% volume decline for the quarter. The baby care segment, including Pampers diapers, faced even greater challenges, with organic sales dropping by mid-single digits. With the global birth rate decreasing, P&G is encouraging consumers to purchase higher-end baby care items, such as Pampers Premium diapers, to drive sales growth, yet this strategy does not fully offset declining volume.
P&G’s grooming division, featuring products like Gillette and Venus, achieved a 4% volume increase, credited to innovation. The fabric and home care segment, which includes brands like Swiffer, Febreze, and Tide, saw a 1% rise in volume for the quarter.
The company reported fiscal first-quarter net income attributable to P&G of $3.96 billion, or $1.61 per share, down from $4.52 billion, or $1.83 per share, compared to the previous year. Excluding restructuring charges and other items, earnings per share were $1.93.
P&G reaffirmed its fiscal 2025 forecast, projecting core net earnings per share between $6.91 and $7.05 and anticipated revenue growth of 2% to 4%.
