Date: Wednesday, October 20, 2021
Source: The Wall Street Journal
Procter & Gamble Co. PG +0.87% said that it expects solid sales and profit growth over the next nine months, even as costs for everything from warehouse space to raw materials rise faster than the consumer-products company expected.
From furniture makers to grocers, the world’s biggest companies are using their deep pockets, sprawling global operations and commanding market share to insulate themselves from the global supply-chain meltdown.
They are also flexing their pricing power, taking advantage of consumers’ willingness to pay up for higher-end products.
P&G, maker of Tide detergent and Crest toothpaste, said Tuesday it will start charging more for razors and certain beauty and oral care products, price increases that come in addition to earlier moves to start charging more for staples from diapers to toilet paper.
The company said its sales and profit goals for the year remain intact, as it has managed to keep products in stock.
“To the consumer, it looks like we’re in good supply,” P&G Finance Chief Andre Schulten said in an interview.
Other corporate giants are remaining relatively insulated from the global supply-chain crisis, with sales and profitability stable or growing even as their margins and, in some cases, share prices, take hits.
U.S. inflation is at its highest level in a decade as price increases from pandemic-related labor and materials shortages ripple through the economy.
IKEA, the world’s largest furniture seller, said even though many of its products are absent from shelves as they sit idle at warehouses waiting for trucks, shortages weren’t significantly affecting sales because the company has a big enough range of products to provide alternatives. Meantime, the company said, consumers’ shift to online shopping provided a sales boost that more than makes up for any lost revenue.
Grocer Albertsons Cos. said this week that sales rose nearly 5% for the three-month period ended Sept. 11, despite major gaps in supply. The company, the second-largest U.S. grocer, said it is offering alternatives to out-of-stock items and passing on price increases to consumers, who have so far been willing to pay more for staples.
Albertsons Chief Executive Vivek Sankaran said Monday during a call with analysts that supply-chain challenges persist and that shoppers might not find exactly what they are looking for in stores. But the grocer is finding ways to supply its shelves and consumer demand remains strong, he said.
P&G executives said the company’s scale, ability to spend on supply-chain fixes and its flexible operations are enabling it to keep products in stock even as consumers increasingly encounter sparse shelves at stores.
In China, for instance, P&G moved production to other factories when some provinces limited plants’ power usage in recent weeks as part of a national effort to limit energy consumption.
P&G said it also has started enlisting backup suppliers, changing shipping routes to get around bottlenecks, reformulating products and, in some cases, limiting how much any one retailer can buy at a time to avoid stockpiling.
“We become a very attractive customer for our suppliers because of the size and momentum of our business,” said Jon Moeller, P&G’s operating chief, who is set to over as chief executive next month.
Over the past decade, many of America’s biggest corporations have downsized, streamlined and centralized their operations, which helped enable them to capitalize on pandemic challenges, said Michael Zimmerman, who leads the analytics practice for consulting firm Kearney’s Americas region.
“The big companies have gotten the message that they need to be agile as well as big,” he said. “They are able to commit $10 million to book three ships, or they can book an entire plastics plant, or mobilize a team of engineers to solve new problems very quickly.”
P&G, which released quarterly financial results on Tuesday, said the moves, along with increased demand for its products, should help offset added costs.
P&G dwarfs most of its consumer-products rivals, and has largely outperformed them in the pandemic. Its closest competitor is Unilever PLC, maker of Dove soap and Ben & Jerry’s ice cream, with $45 billion in annual revenue last year compared with P&G’s $76 billion.
P&G shares are up roughly 2% from six months ago, while Unilever, Kimberly-Clark Corp. and Colgate-Palmolive Co. have seen shares fall 7% or more in the same period.
Size isn’t the only factor setting P&G apart, Mr. Moeller said. The company has streamlined operations and invested heavily in creating a more flexible supply chain.
P&G also has benefited from the fact that the pandemic has left many Americans with more disposable income, as swaths of the population received stimulus checks and were able to continue working with fewer spending options due to lockdowns and curbed travel and recreation.
The company’s brands—Gillette, Pampers and Tide among them—tend to be pricier than competitors’ offerings. And P&G has turned out a string of new, high-end products in recent years, from premium baby diapers to a $300 electric, rechargeable Oral-B toothbrush that is a big seller in the category. Cheaper, private-label brands, meanwhile, have been losing share since the start of the pandemic.
That trend could abate or even reverse as consumers increasingly feel pinched by the rising cost of everything from cars to home heating, and if that happens, companies that have benefited from higher prices would be at risk, Bernstein analyst Callum Elliott said in a note.
P&G said organic sales, a measure that strips out deals and currency moves, increased 4% in the quarter ended Sept. 30. Profit fell slightly. The company said core earnings per share fell 1% to $1.61.
Costs are rising faster than P&G forecast. P&G now expects to spend $2.1 billion more on transportation and raw materials such as pulp and resin for the fiscal year ending June 2022. The company in July predicted a $1.9 billion increase.
Demand remains high for pandemic hot-sellers such as cleaners, paper towels and toilet paper even as more people return to work and school, Mr. Schulten said. Organic sales rose in every segment last quarter, with consumers buying P&G products in higher quantities and paying more both due to price increases and because they favored higher-end mainstays, from pricey razors to premium diapers.
The biggest sales increase was in P&G’s healthcare unit, driven by higher demand for respiratory remedies as more people contracted colds and other bugs compared with a year ago when people in many parts of the world were locked down due to the pandemic.
During the latest quarter, P&G’s net sales rose 5% to $20.3 billion, higher than the consensus forecast of $19.8 billion from analysts polled by FactSet.