Financial Performance

P&G Beats Estimates, Announces Price Hikes

P&G's risky pricing move "will serve as a test for how willing Americans are to pay up for big household brands."
Matthew HellerAugust 1, 2018

Procter & Gamble announced price increases on some of its key brands as rising shipping and commodity costs cut into its quarterly profit.

The consumer products giant on Tuesday reported fourth-quarter core earnings of 94 cents per share, beating analysts’ estimates of 90 per share. But total sales were $16.5 billion, roughly $50 million below the $16.55 billion predicted.

P&G’s operating profit margin last quarter shrank more than 2 percentage points from last year, in part because of price cuts on brands including Gillette razors, Crest toothpaste, and Luvs diapers, as well as increases in shipping and commodity costs.

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As CNN reports, “shipping costs have spiked as demand for goods accelerates and the United States faces a shortage of truck drivers.” On the commodity side, market prices for hardwood pulp have risen 60% and 20% for softwood since 2016.

“P&G sources both types from the United States and Canada and uses them to make tissue papers and diapers,” CNN said.

Food companies such as Coke, Boston Beer, Hershey, and Tyson Foods have announced price increases in recent weeks. Now P&G is following suit, announcing Tuesday it was in the process of raising Pampers’ prices in North America by 4% and had begun notifying retailers that it would increase the average prices of Bounty, Charmin, and Puffs by 5%.

“P&G’s move will serve as a test for how willing Americans are to pay up for big household brands,” CNN said. “The strategy could leave the company vulnerable to low-cost competitors or pushback from retail partners.”

Pampers is P&G’s largest brand, with annual sales of above $8 billion. Last year, Bounty had more than a 40% global share of the paper towel market, and Charmin had more than a 25% share of toilet paper sales.

P&G executives admitted raising prices carried risks, but expressed optimism it could continue to grow market share.

“There is uncertainty and will be volatility with these pricing moves. They will negatively impact consumption. We’ll have to adjust as we go and as we learn,” CFO Jon Moeller told analysts.