Go against the Tide?
Procter & Gamble's earnings did top forecasts. But dig deeper and the increase in sales is all about higher prices. Inflation could be taking a toll on consumer demand.
Procter & Gamble (not Proctor. The perennial misspelling of the first part of P&G’s corporate name has always been a journalist pet peeve of mine. But I digress.) has a problem. Sure, earnings topped forecasts thanks to a 6% increase in sales. But the maker of Tide, Charmin, Head & Shoulders, Gillette, Pampers and numerous other name brand household staples isn’t doing as well as it might first appear.
Consider this. P&G’s organic sales growth, which back out foreign exchange fluctuations and any asset sales or acquisitions, increased 7%. But sales represent the total value of what consumers purchase. Actual demand on the other hand is faltering. P&G said that organic volume, i.e. the amount of “stuff” (cue the late great old George Carlin bit), fell 1% in the quarter.
In other words, P&G’s revenue is growing…but only because it’s charging shoppers more for its products. That may not be sustainable. If volume continues to slide, that could be a sign that consumers have reached their breaking point when it comes to inflation. Volume fell in three out of P&G’s core five business segments: Grooming, Fabric & Home Care and Baby, Feminine & Family Care.
Shares of P&G still rose 2% Wednesday following the earnings report, bucking the downward trend for the broader market. But investors are definitely still wary. P&G’s stock is missing this year’s rally. It’s down 2%…although that actually makes it one of the “better” performers in its sector. The Consumer Staples Select ETF has fallen nearly 9% this year, dragged down by drops in Colgate-Palmolive, Clorox and other supermarket stalwarts.