Please ensure Javascript is enabled for purposes of website accessibility

Procter & Gamble Talks About a "Forever Altered" Consumer Landscape

By Demitri Kalogeropoulos – Updated Apr 20, 2020 at 3:57PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company doesn't think its latest demand spike was just a temporary bounce.

Procter & Gamble's (PG 0.10%) latest earnings report was a hit with investors. It showed robust sales and profit growth as the COVID-19 pandemic scrambled consumers' shopping priorities. Through that volatility, P&G overcame manufacturing and supply challenges to win market share in bedrock categories such as fabric care and home healthcare.

In a conference call with investors, management described the head-turning scope of the recent demand spike. CFO Jon Moeller also predicted that, while short-term sales trends will be volatile, P&G is likely to benefit from a fundamental shift in consumption toward many of its product categories.

Let's look at some highlights from that presentation.

A father does the dishes with his two kids

Image source: Getty Images.

Demand jumped

As the pandemic unfortunately developed in the U.S. and Europe as the quarter progressed, demand surged.
-- Moeller

P&G's 6% organic sales growth might seem to be just a slight improvement over the 5% gains investors have seen over the previous six months. But in fact, that result was three times the rate of increase that executives were predicting going into the quarter.

Demand jumped across many categories as consumers prioritized cleanliness and ramped up stay-at-home time across Europe and North America. People are cleaning dishes and doing laundry far more often, for example, and snapping up healthcare brands such as Vicks respiratory products, Metamucil, and Pepto Bismol. These trends contributed to a 10% spike in sales in the U.S., a 14% surge in Canada, and 6% growth in key European markets.

The supply chain held

March was a true test for our product supply planning and logistics organization, which they passed with flying colors. We set records for volume of product produced and shipped.
-- Moeller

P&G's supply chain was stressed, but it didn't break. The company shipped 22% more from its facilities in the U.S. market in March, executives said, even though some areas had modified hours and limited capacity.

The diaper niche suffered from significant out-of-stock problems, which pushed market share down in that key segment. But overall, P&G believes it gained ground in nearly all of its consumer staples categories. That success allowed earnings to jump 10% even though executives had predicted a slight decline for the third quarter.

Not just a temporary bounce

Consumption of our products is not likely to dissipate.
-- Moeller

Other consumer staples retailers have predicted in recent weeks that the demand spike they're seeing should just be temporary. But P&G struck a different tone, saying there could be a "forever altered health, hygiene, and cleaning" focus for most people around the world. Its dominant market position in niches such as cleaning supplies, laundry care, and baby care should serve it well in that scenario.

Moeller cautioned that there are some huge short-term risks ahead, including a recessionary economic environment with falling wages and rising unemployment. The path of the virus and the timing of the restarting of key parts of the economy are major variables, too. That's why the company merely affirmed its full-year outlook rather than raising it after blowing past its third-quarter forecast.

P&G's long-term outlook is more bullish. The prospect of a fundamental sales lift relies on the idea that consumer needs for cleaning supplies will stay elevated for the foreseeable future.

That situation would favor the industry leader in niches such as paper towels, dish detergent, and fabric care. "We believe we are relatively well positioned," Moeller said, "to serve consumers' heightened needs and their changing behavior."

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$135.71 (0.10%) $0.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.