P&G volumes drop, price hikes protect profit

Posted by Daniel Palmer on 2nd February 2009

The world’s largest consumer goods company, Procter & Gamble, saw volumes drop as the downturn began to have an impact on their business in the December quarter, a possible sign of the impact of private label. Procter & Gamble’s heightened prices helped shield them from major revenue declines, however.

“As expected, this was a particularly challenging quarter,” said Chairman and Chief Executive Officer A.G. Lafley. “Despite this, we grew organic sales two per cent and delivered against our going in EPS guidance. We expect the environment will remain difficult and highly volatile – at least in the near term.”

Net sales fell three per cent to US$20.4b, with unfavourable currency exchange rates combining with volume declines to cause headaches for the consumer goods maker. Snacks, which include the Pringles brand, and Pet Care net sales declined one per cent to $0.8 billion, but organic sales increased four percent for the quarter. Net sales were negatively impacted by unfavourable foreign exchange of five per cent, a volume decline of five per cent and negative product mix of one per cent. These impacts were almost offset by ‘positive pricing’ of 10 per cent. Volume in Snacks declined mid-single-digits due to supply constraints in North America, the company advised.

“We are focused on the fundamentals that are critical to success in our business,” Mr Lafley continued. “We will continue to build brands that deliver better value for consumers by leading innovation and managing cost and productivity programs with discipline. Our efforts in these areas give me confidence that P&G will continue to grow profitably and generate attractive returns … over the long-term.”

P&G Executives added that they do not anticipate a major price battle in the consumer packaged goods sector, maintaining any drop in prices should still be offset by a rise in volume.

“I don’t think you’re going to see a return to irrational price wars,” Mr Lafley told journalists on a conference call, discounting fears that retailers may place great pressure on margins of manufacturers during the downturn – particularly if private label can continue to make inroads.