Procter & Gamble is fighting “greedy inflation” claims after margins soared

Procter & Gamble raised profit margins for the first time in two years after the world’s largest maker of household goods pushed prices to consumers in recent months faster than its own expenses rose.

But FMCG executives have disputed the notion that they are bent on boosting profitability at the expense of shoppers – a phenomenon known as “greedy inflation” – and warned of a “lack of widespread mitigation” in input costs.

Results Friday from the US-based company showed that prices across its portfolio of consumer products, which include Fairy dishwashing liquid, Oral-B toothbrushes and Pampers diapers, rose about a tenth in the most recent quarter.

As a result, consumers under financial stress bought less from P&G, and the company’s sales volume fell 3 percent in the three months through the end of March.

However, higher prices made up for lower volume and helped the Cincinnati-based company achieve net sales of $20.1 billion, up 4 percent from the same period last year.

Despite further increases in the cost of goods and materials, P&G’s gross margin improved by 1.5 percentage points to 48.2 percent – the first improvement since 2021.

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

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

Both the price hikes and productivity initiatives “were absolutely critical for us to continue being able to operate in this environment,” said Andre Scholten, chief financial officer.

He added that the company — whose products include Head & Shoulders shampoos, Tampax tampons and Gillette razors — was “just beginning” to “look for our way out” after margin erosion in the previous consecutive quarters.

Procter & Gamble said on Friday it was facing a “headwind” of $3.5 billion for the fiscal year ending in June from unfavorable foreign currency and higher costs of goods and materials.

The expected result was $200 million lower than the total it had projected in January due to lower cost of goods and freight than previously expected.

However, Scholten said that while the costs of some commodities such as pulp are “going down a bit,” other energy-intensive materials — including caustic soda and ammonia — are increasing.

“There is no widespread mitigation in terms of input costs,” he said, adding that the recent margin improvement was only “modest.”

The CFO won’t be dragged into P&G’s pricing plans in the coming months, though he hinted that the worst for shoppers might be over.

He noted that while the “cost environment” remains “unhelpful,” it has not deteriorated significantly in recent weeks.

On the back of quarterly results, P&G said it expects annual sales to grow on an organic basis by 6 percent compared to the previous range of 4 to 5 percent.

However, I expected EPS to be at the “lower end” of the previously released range. The company said it expects diluted net earnings per share to range between flat and higher by 4 percent.