Procter & Gamble counters ‘greedflation’ claims after margin increase

Procter & Gamble has lifted profit margins for the first time in two years after the world’s biggest maker of household goods pushed up prices for consumers in recent months at a faster pace than own spending rose.

But executives at the consumer goods bellwether countered the idea that they were determined to boost profitability at the expense of customers – a phenomenon known as “greedflation” – and warned there was “no broad relief” in input costs.

Friday results from the US-based company showed prices of its entire portfolio of consumer products, which include Fairy dishwashing liquid, Oral-B toothbrushes and Pampers diapers, rose about a tenth last quarter.

As a result, financially strapped consumers bought fewer items from P&G, and the company̵[ads1]7;s sales volume fell 3 percent in the three months to the end of March.

Nonetheless, higher prices more than offset the volume decline and helped the Cincinnati-based company produce net sales of $20.1 billion, up 4 percent from the same period a year ago.

Despite further raw material and materials cost increases, P&G’s gross margin improved 1.5 percentage points to 48.2 percent — the first improvement since 2021.

The results pushed shares in P&G, which had been little changed for the year so far, up 4 percent in morning trading in New York.

While P&G’s margin increase was mainly driven by higher prices, productivity savings also helped. Net income rose 2 percent to $3.42 billion.

Andre Schulten, CFO, said that both price increases and productivity initiatives were “absolutely essential for us to continue to be able to operate in this environment”.

He added that the company — whose products include Head & Shoulders shampoo, Tampax tampons and Gillette razors — was “just starting” to “dig us out” after margin erosion in consecutive prior quarters.

P&G said on Friday it faced a $3.5 billion “headwind” for the fiscal year ending in June due to unfavorable currency and higher raw and material costs.

The expected hit was $200 million lower than the total it forecast in January due to less severe commodity and shipping costs than previously expected.

Still, Schulten said that while the cost of some commodities like pulp “went down a little bit,” other energy-intensive materials — including caustic soda and ammonia — rose.

“There is no broad-based relief in terms of input costs,” he said, adding that the recent margin improvement had only been “modest”.

The CFO would not be drawn on P&G’s pricing plans in the months ahead, although he suggested the worst for shoppers may be over.

Although the “cost environment” was still “not helping”, it had not deteriorated significantly in recent weeks, he noted.

On the back of its quarterly results, P&G said it expected to increase annual revenue on an organic basis by 6 percent, compared to a previous range of between 4 and 5 percent.

However, it predicted earnings per share would be at the “lower end” of a previously issued range. The company said it expected diluted net earnings per share to be between flat and up 4 percent.