- Earnings Beat: Procter & Gamble surpassed Wall Street’s fiscal first-quarter expectations for both earnings and revenue.
- Waning Demand: Despite the earnings beat, overall product volume was flat, signaling that consumer demand for some key household products is weakening.
- “K-Shaped” Economy: P&G is witnessing a clear split in consumer behavior, with higher-income shoppers buying in bulk while lower-income families are stretching every last drop of detergent and shampoo.
- Challenging Outlook: CEO Jon Moeller acknowledged a “challenging consumer and geopolitical environment,” even as the company maintained its full-year forecast.
Procter & Gamble (P&G) reported strong fiscal first-quarter earnings on Friday, beating analysts’ expectations and sending its stock up 4% in premarket trading. However, a closer look at the numbers reveals a troubling trend: while prices are up, the actual amount of products people are buying is stagnating, pointing to significant strain on the average consumer.
Financials at a Glance
The maker of Tide detergent, Pampers diapers, and Gillette razors announced impressive top-line results for the quarter ending September 30.
- Earnings per share: $1.99 adjusted vs. $1.90 expected
- Revenue: $22.39 billion vs. $22.18 billion expected
Net sales saw a 3% rise to $22.39 billion, and net income climbed to $4.75 billion from $3.96 billion a year earlier. Despite these positive figures, the company’s organic sales volume—a key indicator of consumer demand that strips out pricing effects—was completely flat compared to the same period last year. This suggests that P&G’s revenue growth is being driven by higher prices, not by selling more goods.
The Tale of Two Consumers
CFO Andre Schulten described a “stable” but “not great” consumer environment, highlighting a deepening “K-shaped” dynamic in shopping habits. This trend shows a major divergence based on income levels.
High-Income Shoppers
Wealthier consumers are still spending but are focused on value. They are buying larger pack sizes from mass retailers and online to save money in the long run.
Paycheck-to-Paycheck Consumers
In contrast, U.S. consumers with tighter budgets are actively trying to make products last longer. According to Schulten, these shoppers are “using every bottle of detergent or shampoo to the last drop” and waiting until their pantries are completely empty before buying more.
Performance by Category
This consumer split was evident in the performance of P&G’s different divisions.
- Bright Spots: The Beauty segment (Olay, SK-II) was a standout, with volume growing by 4%. The Grooming business (Gillette, Venus) also saw a 1% increase in volume.
- Struggling Segments: The Fabric and Home Care division, which includes household staples like Tide and Swiffer, saw its volume drop by 2%. The Health Care business experienced a similar 2% decline.
- Flat Performance: The Baby, Feminine, and Family Care segment (Pampers, Tampax) reported flat volume for the quarter.
Despite the mixed demand signals and what CEO Jon Moeller termed a “challenging consumer and geopolitical environment,” P&G reiterated its full-year forecast for sales growth between 1% and 5%, showing confidence in its ability to navigate the uncertain economic climate.