07 Aug 2018
Posted in Consumer
P&G needs to mitigate impact of growing production costs to drive earnings forward despite showing positive net sales growth in Q4 results
Following the release of P&G’s fourth quarter results,
Jamie Mills, Senior Consumer Analyst at GlobalData, a leading data and analytics company, offers her perspective on the company’s performance:
‘‘P&G’s fourth quarter results indicate positive net sales growth of 3%. However an increase in costs of 9% in its supply chain has served to reduce net earnings compared with the same period in 2017. The company will need to reduce its supply and manufacturing overheads or consider increasing its prices to mitigate the impact of growing commodity costs experienced across the consumer goods landscape on its bottom line.
‘‘This strategy is already underway with P&G announcing a 4% price increase on its Pampers brand in North America as well as a 5% list price increase on paper product brands Bounty, Charmin, and Puffs. With its baby, feminine, and family care category showing net sales declines of 2% compared with Q4 2017 this could assist returns to growth by leveraging the brand strength of Pampers in the marketplace. Nevertheless, the price conscious nature of consumers especially in light of economic and political uncertainty in the US could push them towards switching to value alternatives such as retailer own brands.
‘‘P&G’s grooming business also showed declines in net sales revenue as prices were lowered to improve customer value. Direct-to-consumer brands such as Unilever’s Dollar Shave Club, cheaper alternatives in retailers (both in-store and online), as well as facial hair being increasingly fashionable all present key challenges to P&G’s core grooming brand Gillette. Nevertheless continuing to expand its direct-to-consumer approach, price tiering and accessibility could prove favourable for this category in future.
‘‘In comparison, beauty represented the brightest spot in the P&G portfolio with a net sales increase of 10% compared with the year before, driven by the success of its premium brand SKII and Olay Skin Care. These brands align well with the desire for high quality, luxurious products, tailored to meet specific skincare needs and concerns. Similarly, rolling out successful marketing campaigns to new markets such as SKII’s #INeverExpire campaign in the US will drive P&G’s beauty brands appeal, sales and loyalty with core consumers.
‘‘Looking ahead to the next quarter, continued investment in strong marketing campaigns will stimulate growth across the portfolio, particularly beauty. While its new pricing strategies will serve to offset growing production costs, they run the risk of reducing volumes in household and baby care categories as price sensitive customers switch to more competitive offerings for these every day items.’’