Procter & Gamble (PG 0.11%) seemed to be sailing clear and free through the inflationary environment not too long ago. That's changed in a big way following an early warning by management that consumers were getting more cost-conscious. The question now is, how bad will it get?

Great numbers

Unless you completely ignore the media, you know that prices are on the rise. Inflation, as this phenomenon is called, is a problem throughout the economy. Even companies like international consumer staples giant Procter & Gamble have to deal with it. The process is pretty simple. Management cuts costs and pushes through price hikes, with the mix hopefully protecting margins.

A person with groceries looking with surprise at a receipt.

Image source: Getty Images.

There's a time lag to deal with here, though, so there are no quick fixes. Indeed, it takes time to streamline operations and even more time to increase prices. It is complex, too, requiring Procter & Gamble to work with its direct customers and retailers and monitor how end customers, the consumers, are accepting price hikes. For a long time, Procter & Gamble was doing great on the price front.

In the first quarter of fiscal 2022, the consumer staples behemoth was able to increase prices, shift consumers into higher-priced products, and increase volume. In the second quarter, the price mix was neutral, but volume and prices both increased. In the third quarter of fiscal 2022, prices rose even more while volume and product mix were both positive again. But in the fourth quarter, prices increased a huge 8%, leading to the mix being flat, and volume was down around 1%.

Overall, that's a phenomenal performance in the face of a brutal inflationary environment. But when Procter & Gamble reported full-year fiscal 2022 earnings, it warned investors that the environment was getting more difficult to navigate. The weakening ability to push through price hikes in the fourth quarter was a notable trend shift. The first quarter of fiscal 2023 proved that warning.

Good, but not great

In Procter & Gamble's first quarter of fiscal 2023, organic sales growth came in at 7%, which is hard to complain about. However, when you dig into the numbers a bit, you see that things aren't quite as good as they were in fiscal 2022. For example, volume declined 3%, triple the drop in the previous sequential quarter. And while the mix was slightly positive overall, two of the company's five divisions saw consumers shifting down to cheaper products in notable fashion. The big driver of the pushback was the large price hikes that the company continues to push through.

The risk here is that consumers don't seem to be as willing to accept those price increases, which the numbers show and management has highlighted as a potential problem. Looking to the future, management lowered its overall growth outlook to a decline ranging from 1% to 3% -- a notable difference from its previous call of flat to an increase of 2%. To be fair, some of the headwinds here are tied to the strong dollar, but investors shouldn't get so caught up that they overlook the trends on the sales front. 

Procter & Gamble is pushing hard on price, and consumers are starting to push back. That's not likely to be a short-term event, given that price changes can take time to make. And once consumers shift gears and get more cost-conscious, it is highly likely that they will continue to be cost-conscious for a while. That means Procter & Gamble could be coming to the end of its strong performance run.

Watch and wait

There's no reason to sell Procter & Gamble if you own it, as it's still a well-run company with a dominant industry position. However, if you are watching this stock and its 2.7% yield, you might want to sit back and wait a bit longer. A yield above 3% would be a far more attractive entry point, given the yield history of the stock (above 3.5% would be particularly alluring, historically speaking). And if consumers are, indeed, getting pickier about price, that yield range may not be too far away. Overall, Procter & Gamble is a good company, but patient investors could end up with a much more desirable entry point if current sales trends hold.