P&G cuts annual profit forecast on slowing price hikes, Gillette business writedown By Reuters

P&G cuts annual profit forecast on slowing price hikes, Gillette business writedown By Reuters

© Reuters. Tide detergent, a brand owned by Procter & Gamble, is seen for sale in a store in Manhattan, New York City, U.S., June 29, 2022. REUTERS/Andrew Kelly/ File Photo

By Ananya Mariam Rajesh

(Reuters) -Procter & Gamble cut its annual profit forecast on Tuesday following a writedown in the value of its Gillette business in December and as the boost from earlier price hikes starts to fade in the United States.

P&G had said it would record a $1.3 billion charge related to a drop in the book value of its Gillette business at a time when volume growth in the segment slowed due to the hybrid post-pandemic work culture and a stronger dollar.

The company previously estimated it would record up to $2.5 billion in charges over two fiscal years due to the Gillette business write down and restructuring of certain markets.

This along with waning benefits from price hikes that most of the consumer goods companies enjoyed for two years have started to weigh on profits.

P&G now expects fiscal 2024 earnings to range from a fall of 1% to in line with fiscal 2023 earnings per share, compared with its prior forecast of a 6% to 9% growth.

Focus will also be on the company’s ability to maintain strong volume growth as production costs have started to ease. That has helped P&G increase its gross margin by 520 basis points in the second quarter.

They were able to maintain some pricing in an environment where consumers have become cautious of higher prices, Donald Nesbitt, senior portfolio manager at Ziegler Capital Management said.

However, P&G’s overall volumes were flat, while average prices across product categories rose 4%.

The company’s net sales rose 3.2% to $21.44 billion in the second quarter, missing LSEG estimates of $21.48 billion, due to weak demand for its beauty and personal-care products in major market China.

In China “we see a recovery since COVID that is not linear and is somewhat bumpy,” P&G CFO Andre Schulten said on a media call.

P&G’s second-quarter sales in the country were down 15% driven by a generally slower recovery in terms of consumer sentiment, Schulten added, since China abandoned its strict “zero-COVID” policy.

On an adjusted basis, the company earned $1.84 per share, beating estimates of $1.70, sending P&G’s shares up nearly 1% in premarket trading.

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