P&G braces for “significant” headwinds in fiscal 2023

29 Jul 2022 --- In a recently released overview for its fiscal year 2022, Procter & Gamble Company (P&G) reported net sales of US$80.2 billion – an increase of five percent versus the prior year. The maker of Pantene, Gillette and Olay reported mixed quarterly results, flagging rising commodity costs while warning about “significant headwinds” to persist for its fiscal 2023.

Andre Schulten, P&G’s chief financial officer, cautioned in an earnings call that the FMCG giant is seeing “some resurgence” of consumers turning toward cheaper store brand items in some categories.

However, Schulten affirmed he is confident that the “consumer is holding up well” after the company raised its prices to account for inflation.

“Fiscal year 2022 was another strong year,” remarks Jon Moeller, chairman of the board, president and CEO. “The P&G team’s execution of our integrated strategies delivered strong top-line growth, earnings growth and significant cash return to shareowners in the face of severe cost and operational headwinds.”

The FMCG giant is seeing “some resurgence” of consumers turning toward cheaper store brand items in some categories (Credit: P&G).The effects of the pandemic are still felt this year at backlogged trading ports, while the Russia-Ukraine war continues to impact global supply chains. All in all, these effects have led to a jump in commodity prices of essential pulp, resin and polypropylene, eating into profits of consumer goods makers like P&G.

“As we look forward to fiscal 2023, we expect another year of significant headwinds,” concedes Moeller. “We remain committed to our integrated strategies of superiority, productivity, constructive disruption and an agile and accountable organization structure.”

“They remain the right strategies to step forward into the near-term challenges we are facing and continue to deliver balanced growth and value creation.”

Fourth quarter results
In P&G’s fiscal report, organic broad-based sales increased seven percent, driven by a two percent increase in organic volume, a four percent increase due to higher pricing, and a one percent increase from positive mix.

Diluted net earnings per share were US$5.81, an increase of six percent versus the prior year GAAP EPS, which included a charge for an early extinguishment of debt. Diluted net earnings per share increased three percent versus the prior year Core EPS. Currency-neutral net EPS increased five percent versus the prior year Core EPS.

The parent company of Head & Shoulders, Safeguard and Old Spice generated an operating cash flow of US$16.7 billion, with an adjusted free cash flow productivity of 93%. The company returned nearly US$19 billion of value to shareholders in fiscal 2022 via US$8.8 billion in dividend payments and US$10 billion of share repurchases.

April-June quarter results
The consumer goods giant reported fiscal year 2022 fourth quarter net sales of US$19.5 billion, an increase of three percent versus the prior year

The P&G chief financial officer confirmed that consumers are observed to be holding up well in spite of raised prices to reflect inflation.

However, Schulten affirmed he is confident that the “consumer is holding up well” after the company raised its prices to account for inflation.

The growth was driven by an eight percent increase in pricing, partially offset by a one percent decrease in volume primarily due to pandemic-related lockdowns in Greater China and reduced operations in Russia. Mix was neutral to net sales growth for the quarter.

Diluted net earnings per share were US$1.21, an increase of seven percent versus the prior year. Operating cash flow was US$3.7 billion with an adjusted free cash flow productivity of 99%.

P&G developments
In recent business activities, P&G launched high-performing shampoo and conditioner bars in Europe at the Reuters Responsible Business Summit last month. The new line is packaged in paper-based boxes made of FSC-certified paper to address consumer demand for plastic-free packaging.

Since 2021, the company has reportedly halved its virgin plastic usage, which means that the environment is spared the production of about 300 million virgin plastic bottles – or about 10,000 metric tons – annually.

In packaging innovation, P&G’s Fairy Max Power dish soap transitioned to an upside-down bottle with “patented leak guard technology” earlier this year. The washing up liquid also boasts an improved formula and in-built dosing mechanism to moderate use and reduce mess and waste.

Edited by Benjamin Ferrer