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