Listen to this article
Lusting after shiny hair, a smooth shave, a happy baby and a sparkling home? Procter & Gamble can provide them all. But they cost more these days. The consumer products group managed to offset soaring commodity and energy costs in the year ending June 30 by pushing up prices and squeezing overheads. The company improved its operating margin by 50 basis points in the fourth quarter to post above-forecast earnings per share of $0.80 on Tuesday, after stripping out the positive effect of tax changes.
Delivering more of the same will become increasingly challenging. Commodity costs are expected to rise by another $3bn in the coming year. Margins will be squeezed even with P&G’s best efforts to push higher sales through the same fixed cost base and to trim its administrative and management operations. Input costs have risen in the current quarter, while price rises across P&G’s business will only start to be felt in the fall suggesting a difficult first three months of this fiscal year.
At the top line, P&G has moderated its outlook for volume growth next year to 2 to 3 per cent. In developing markets, the slowing global economy may test the willingness of the emerging middle class to absorb prices rises or trade up to fancier brands. At home, troubles for flagship names such as Pantene mean sluggish sales volume growth of higher-margin beauty products.
But P&G’s wide-ranging portfolio of brands should provide comfort in a downturn. Cash-strapped consumers can shun Tide for a cheaper laundry detergent and stay within the P&G stable. Those cutting back on the latest anti-aging potion may still reach for Pampers in the next aisle. Moreover, few would question the vaunted P&G management team’s ability to extract cost savings when required. With a balance of beauty and basics, P&G can navigate a trying year but the process won’t always be pretty.
Get alerts on US & Canadian companies when a new story is published